06.05.202620:12 Forex Analyse & Reviews: EUR/USD Analysis – May 6th: US Labor Market Conditions

The wave pattern on the 4-hour chart for EUR/USD has changed. There is still no indication that the upward trend segment (shown in the lower chart), which began in January of last year, has been canceled. However, the wave structure now appears quite ambiguous. In such situations, I always recommend switching to a lower timeframe (upper chart) and focusing on simpler, smaller wave structures to make short-term forecasts, which are sufficient for opening trades. Wave structures can be very complex and allow for multiple scenarios. The simplest approach is to trade standard "five-three" patterns.

In the chart above, a classic five-wave impulse structure can be identified, with an extended third wave. After its completion, a corrective structure of at least three waves began forming. Three waves have already been observed, so in the near future the market is likely to form at least one more downward corrective wave. Future developments will depend on geopolitics: whether the upward structure becomes more complex or a new downward trend segment begins.

On Wednesday, EUR/USD gained 60 basis points, and volatility increased. The news background was very limited, with market participants mainly focused on the US ADP employment report. However, as often happens, expectations differ from reality. During the day, reports emerged that Iran and the United States are close to signing a memorandum or framework agreement that would last one month, during which negotiations would continue in an effort to reach a full ceasefire and reopen the Strait of Hormuz. Naturally, this information came from "insider" sources, so its reliability is uncertain.

Donald Trump also stated that the military operation in Iran has ended and that an agreement may be signed soon. However, he added that if Iran refuses to sign, the US would carry out new strikes, potentially more severe than previous ones. Thus, rumors and insider reports continue to suggest that the parties are moving toward some form of agreement, though not a final one. In my view, negotiations could collapse at any moment.

Returning to the ADP report, the US labor market remains a key indicator for both the market and the Federal Reserve. According to the April report, employment in the US increased by 109,000, exceeding forecasts by 9,000. This represents a moderately positive result and provided some support to the dollar. However, geopolitical news tends to have a stronger impact, so demand for the US currency declined for most of the day.

General Conclusions

Based on the EUR/USD analysis, I conclude that the instrument remains within an upward trend segment (lower chart), while in the short term it is in a corrective phase. The corrective wave structure appears largely complete and could only become more complex and extended if the geopolitical situation in the Middle East does not worsen. Otherwise, a new downward trend segment could begin from current levels. Since the corrective wave has already formed, I expect a renewed upward move from current levels, with targets near the 1.19 level.

On a smaller timeframe, the entire upward trend segment is visible. The wave structure is somewhat unconventional, as corrective waves differ in size. For example, the higher-degree wave 2 is smaller than the internal wave 2 within wave 3. Such variations can occur. It is important to focus on clear and understandable structures rather than strictly labeling every wave. Recent waves are difficult to identify precisely, so I rely more on higher timeframes in my analysis.

Key Principles of My Analysis

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often change.
2. If there is no confidence in market conditions, it is better to stay out.
3. There is never complete certainty about market direction—always use Stop Loss orders.
4. Wave analysis can be combined with other analytical methods and trading strategies.