EUR/USD Analysis: Wave Structure Signals Downside Exhaustion

EUR/USD Technical Analysis: Elliott Wave Structure

The EUR/USD pair extended its recent decline, falling by another 35 basis points on Tuesday. However, higher time frame Elliott Wave analysis indicates that the broader downward trend segment—forming a corrective five-wave A-B-C-D-E structure—appears structurally complete. All waves in this sequence are approximately equal in size, supporting the view that the corrective phase is reaching its conclusion.

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On the lower time frame, the current impulsive move appears to be wave 5 within the broader wave E. Once this lower-degree wave sequence finishes, the pair is projected to transition into a new impulsive upward trend. A bullish reversal could initially target the 1.1700–1.1800 region, with long-term potential extending well above the 1.2000 level.

Macroeconomic Drivers and Market Disconnect

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Macroeconomic releases provided limited momentum for the US dollar during Tuesday's session. US Durable Goods Orders for September increased by 1.8% month-on-month, exceeding market expectations for a more modest gain. However, the pair had already dropped 35 basis points prior to the release, and demand for the dollar failed to increase further post-release, indicating a disconnect between economic data and price action.

Market participants are turning their focus to central bank events, with the Federal Reserve holding its policy meeting tomorrow evening, followed by the European Central Bank meeting the next afternoon. Despite six to eight weeks of persistent euro weakness, upcoming central bank decisions and subsiding geopolitical concerns in Europe have yet to offer strong fundamental justification for sustained dollar gains.

Key Technical Levels and Outlook

From a technical perspective, a failed attempt to break above 1.1126, which aligns with the 50.0% Fibonacci retracement level on the higher time frame, suggests that selling pressure is losing momentum. This structural setup supports the probability that the market is accumulating energy for a trend reversal.

In summary, while short-term euro weakness persists, the completion of wave 5 within wave E points to downside exhaustion. Traders should monitor price action near current lows for confirmation of a structural turn toward the 1.1700–1.1800 target zone.

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