Forex Analysis & Reviews: 21.05.2025 - EUR/USD Analysis on May 21,...

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21.05.2025 06:56 PM

EUR/USD Analysis on May 21, 2025

The wave pattern on the 4-hour chart for EUR/USD has transformed into a bullish structure and continues to remain so. I believe no one doubts that this transformation occurred solely due to the new U.S. trade policy. Until February 28, when the sharp decline of the U.S. dollar began, the wave structure appeared as a convincing downward trend. A corrective wave 2 was being built. However, Donald Trump's weekly announcements of various tariffs did their job. Demand for the U.S. currency began to drop rapidly, and the entire trend segment that began on January 13 has now taken on an impulsive upward form.

The market couldn't even construct a convincing wave 2 within this trend segment. We saw only a small pullback, which is even smaller than the corrective waves within wave 1. However, the U.S. currency may continue to decline unless Donald Trump completely reverses the course of his trade policy—a shift he has proven capable of making, as we saw on Monday.

The EUR/USD pair fell by 40 basis points on Wednesday. That might not seem like much, but the dollar has been losing around 40 points daily for seven days straight. Seven times 40 equals 280 points in a week and a half. So much for a "minor" loss.

From a wave analysis perspective, everything is going according to plan. The bullish wave structure remains intact, and there are no signs yet of the current trend segment coming to an end. Donald Trump's policies remain unchanged, so the market sees no reason to alter its stance on the U.S. dollar. At this point, I no longer refer to "Trump's trade policy" but simply "Trump's policy," as his decisions and domestic initiatives are perplexing not only to global economists but also to Congressional committees and the Fed. It's worth noting that the Federal Reserve pays no attention to Trump's policies. I believe Fed officials have made the only reasonable decision in the current situation: to separate responsibilities. The U.S. central bank cannot be held accountable for presidential decisions that drive away investors, slow the economy, and raise inflation and unemployment. Therefore, the Fed has no intention of compensating for the missteps of Trump and his administration.

In addition, day after day brings new developments that can't be called positive. These include the downgrade of the U.S. credit rating, Trump's legislative moves that harm the economy and consumers, the absence of trade deals (even though half of the 3-month "grace period" has already passed), and the complete uncertainty regarding any agreements with the EU, China, or the U.S. economy. The market hoped for a miracle for an entire month—but it never came.

Conclusions

Based on the analysis of EUR/USD, I conclude that the pair is continuing to form a bullish trend segment. In the near term, the wave structure will depend entirely on the news background tied to Trump's decisions. This should always be kept in mind. Wave 3 of the bullish segment has begun to take shape, with potential targets extending into the 1.25 level. Whether these levels are reached will depend entirely on Trump's policies and the U.S. stance in global trade. Accordingly, I am considering long positions with targets above the 1.1572 level, which corresponds to 423.6% on the Fibonacci scale. Keep in mind that any de-escalation of the trade war could reverse the bullish trend—but at the moment, there are no wave signals indicating a reversal.

On the higher wave scale, the structure has clearly turned bullish. We are likely entering a long-term upward wave sequence, although Trump-driven news could once again turn the situation upside down.

Core Principles of My Analysis:

Wave structures should be simple and clear. Complex structures are difficult to trade and often involve shifts.
If you're uncertain about the market situation, it's better to stay out.
There can never be 100% certainty in the direction of movement. Always use protective Stop Loss orders.
Wave analysis can be combined with other forms of analysis and trading strategies.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.