The US dollar and upcoming US reports will be the market's primary focus. However, this time, significant events also take place in the EU and the UK. In most cases, the market trades the dollar, while the euro and pound remain spectators in the theater, but there are important events everywhere. The Federal Reserve has lowered the interest rate three times at the end of 2025, but demand for the currency has weakened only slightly in response. In my opinion, the market has not yet fully absorbed these three monetary policy easings, and it seems to have forgotten about the potential "shutdown" and its possible resumption in February 2026. Therefore, I believe that the news backdrop continues to suggest a decline in the dollar and a rise in the euro and pound.
However, next week stands out from the overall market picture. I already mentioned the European Central Bank and Bank of England meetings and crucial reports in the Eurozone and the UK. These could have a significant impact on market sentiment. The US will complement the picture. Reports on Nonfarm Payrolls, the unemployment rate, and inflation will be released in America. These data can be considered far more important than the meetings of the BoE, the ECB, and the Fed combined. Why? Because the Fed continues to act in the dark, the ECB maintains the status quo, and the BoE is not as dependent on the weakness of the labor market.
If the labor market, unemployment, and inflation reports suggest that the rate needs to be cut three more times, then the Fed will implement three more rounds of easing. Jerome Powell has made it clear several times that he has no objection to lowering the rate if inflation is on the path back to 2%. If America enters a new disinflationary process and the labor market continues to "cool," that would provide an excellent basis for continuing the transition to a more "dovish" policy. Market participants will have even more reasons to sell the dollar.
However, the opposite situation could also occur. The labor market begins to recover, and inflation continues to rise. In this case, the Fed will have no reason to lower the interest rate even once in 2026. Certainly, the situation within the Fed may change after Powell's departure, but it is too early to discuss that. In my opinion, in the long term, the dollar will continue to decline, but next week will determine its direction based on the US news backdrop.
Wave Picture for EUR/USD:
Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward trend segment. Trump's policies and the Federal Reserve's monetary policy remain significant factors for the long-term decline of the US dollar. The targets of the current trend segment may extend to the 25th figure. The current upward wave formation is beginning to develop, and one hopes we are observing the construction of an impulse wave set that is part of the global wave 5. Therefore, we should expect a rise to the 25th figure, as I have mentioned before.
Wave Picture for GBP/USD:
The wave structure of the GBP/USD instrument has changed. We continue to deal with an upward impulse trend segment, but its internal wave structure has become complex. The downward corrective structure a-b-c-d-e in C of 4 appears complete, as does the entire wave 4. If this is indeed the case, I expect the main trend segment to resume its formation with initial targets around the 38th and 40th figures.
In the short term, I anticipate wave 3 or c, with targets around 1.3280 and 1.3360, which correspond to 76.4% and 61.8% Fibonacci retracement levels. These targets have been reached. Wave 3 or c continues its formation, and the current wave set is beginning to take on an impulsive appearance. Therefore, one can expect continued price increases with targets around 1.3580 and 1.3630.
Key Principles of My Analysis:
- Wave structures should be simple and understandable. Complex structures are difficult to trade and often involve changes.
- If there is uncertainty about market conditions, it is better not to enter.
- There can never be 100% certainty in the direction of movement. Always remember to use protective stop-loss orders.
- Wave analysis can be combined with other types of analysis and trading strategies.
