EUR/USD Technical Outlook: Potential Downside Toward 1.13

EUR/USD Market Analysis

The EUR/USD 4-hour chart displays a complex wave structure. While the broader upward trend initiated in January remains valid, the recent price action has transitioned into a corrective phase. Current projections suggest the development of wave C, with the potential for further declines if the fundamental environment continues to favor the U.S. dollar.

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On the lower time frame, a classic five-wave bearish structure is evident. Market participants are monitoring the progression of wave 5 within wave C. Should this wave count hold, the pair is likely to target the 1.13 level before the market potentially transitions into a new upward sequence.

Monday’s 20-basis-point decline suggests that wave 5 may be underway, following the likely completion of wave 4. While wave 4 could theoretically extend, its current structure aligns with a standard three-wave correction. This transition signals a potential increase in bearish momentum in the near term.

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Fundamental Drivers and ECB Outlook

The euro faces limited upside potential given the current news cycle. The upcoming European Central Bank policy meeting is largely expected to result in unchanged interest rates. Market participants appear to be positioning for potential selling pressure, given the lack of reaction to previous hawkish signals from the ECB.

Geopolitical tensions, particularly in the Middle East, continue to provide structural support for the U.S. dollar. Persistent conflict and the threat of maritime disruptions in the Bab el-Mandeb Strait could influence energy prices and inflation expectations. These factors may complicate the monetary policy outlook for central banks, further limiting positive drivers for the euro.

Technical Conclusions

The pair remains within a broader long-term upward trend, yet the immediate outlook remains bearish as it completes a downward corrective structure. A decline toward the 1.1352 level—representing the 38.2% Fibonacci retracement—is a primary focus for the current wave C. While the potential for a reversal exists, traders are advised to manage risk appropriately as the pair navigates these corrective patterns.

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