02.06.202600:44 Forex Analysis & Reviews: American Dollar. Weekly Preview

The American dollar began the new week in the lead. At the time of writing this review, it is not entirely clear what caused the sharp strengthening of the dollar, but this morning, a fairly weak unemployment report was released in the Eurozone, followed by a strong ISM Manufacturing Index in the afternoon, and the likelihood of an agreement between Iran and the US has been decreasing for the second consecutive week. Therefore, it can be concluded that today the news background fully supports the dollar, making its rise quite logical.

This week, the markets will again be waiting and hoping for any progress in negotiations between Tehran and Washington. However, the current wave analysis suggests further dollar strengthening, meaning that progress in negotiations is not required for this to materialize. As I mentioned earlier, I see no visible reasons for a memorandum of understanding that could serve as a starting point for deeper, more substantive negotiations, as well as for the de-blockade of the Strait of Hormuz. Therefore, based on geopolitical factors, I would say the US currency has excellent chances this week.

However, economic data should not be discounted. For example, on Friday, important reports on unemployment and Nonfarm Payrolls will be released in the US, which could bring surprises. The market currently expects the unemployment rate to remain at the same level and for 85,000 to 102,000 new jobs to be added outside the agricultural sector in Nonfarm Payrolls. How justified these forecasts will be will depend on the dynamics of the American currency on Friday.

Throughout the week, reports on job openings (JOLTS), the ADP labor market report, and the ISM Services Business Activity Index will also be released. These three reports are also quite important, and my readers can expect a market reaction, even though the market has not frequently paid attention to economic statistics in recent months.

Based on all the above, the wave analysis supports the dollar, geopolitics supports the dollar, and economic data are 50-50. In my opinion, the formation of downward wave sets for the EUR/USD and GBP/USD instruments will continue. The only thing that could hinder this is a real breakthrough in negotiations over the Middle East.

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 and, in the short term, 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 match 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 forms a complete 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.