The European currency approaches the new week in a rather negative mood. Buyers had long hoped for a tightening of the European Central Bank's monetary policy, for a deal that would end the war in the Middle East and open the Strait of Hormuz. However, neither of these scenarios has materialized yet.

The chances of the ECB raising interest rates at the next meeting are 50-50. The ECB is closer to tightening than the Federal Reserve and the Bank of England, but at the same time, one cannot be 100% sure of such a decision. The first day of the week showed that positive economic news from Europe remains a rarity. On Monday, it was reported that retail sales in Germany fell by 0.3% in April, and the unemployment rate in the EU, contrary to expectations, did not decrease to 6.2%. Therefore, the week for the European currency began on a downward note. Now, the wave pattern appears to show the beginning of a fifth wave within a downward section of the trend that started on April 17. The fifth wave may not be too strong and could end slightly below the 16 level. However, the entire current downward trend may be part of a larger wave C, which should complete below the 14 level.

The strength of the EUR/USD decline will be determined by the geopolitical backdrop. The week started with new reports of mutual shelling between the US and Iran. Clearly, any escalatory news is an excuse to buy the US dollar. Promises from Donald Trump about a forthcoming preliminary agreement with Iran have once again failed to materialize, and signals from Tehran are of a completely different nature. Therefore, I believe the US dollar could strengthen in the coming week or two.

Among the economic events in the European Union this week, the inflation report, which will be released tomorrow, stands out, as well as Christine Lagarde's speech and the retail sales report on Thursday, and the final GDP estimate for the first quarter on Friday. Undoubtedly, the inflation report is the most important, but GDP will also matter, as the ECB is doubtful about the feasibility of tightening monetary policy, precisely because of the possible slowing of the European economy. Consequently, a rise in EU inflation above 3.2% could halt the euro's decline. An increase in inflation below 3.2% or a lack of growth could trigger even further declines in the EUR/USD instrument.

Wave Pattern for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward section of the trend (bottom image) and, in a short-term perspective, within a corrective structure. Currently, we may observe the formation of wave 5, which could be part of wave C. The entire wave C (if the current wave analysis is correct) could complete its formation much below the 14 level. However, such a strong decline in the instrument would require support from the geopolitical landscape. Otherwise, the downward wave set may take on a truncated form (a-b-c) and complete its formation slightly below the 16 level.

Wave Pattern for GBP/USD:

The wave pattern of the GBP/USD instrument has become clearer over time. I expect the formation of a downward wave set, which could take on an impulsive form and correspond to the impulsive structure of the EUR/USD instrument. However, even if the GBP/USD instrument forms a series of waves a-b-c, and the EUR/USD instrument a full five-wave structure, this scenario implies a decline for both the euro and the pound. Since single corrective waves are rare, I believe that the British pound will form wave 3 or c. In this case, the instrument is likely to fall below the 33 level. The euro will also decline in this scenario.

Fundamental Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often lead to changes.
2. If there is market uncertainty, it is better not to enter.
3. There is never 100% certainty in the direction of movement. Always remember to use stop-loss protective orders.
4. Wave analysis can be combined with other forms of analysis and trading strategies.