What is the Updated Power Dynamic between the Euro and the Dollar?

[Ben Graham]

Looking at the movements of the EUR/USD pair in recent months, there is a sense that the market is preparing to sell euros and buy dollars for the long term. Autumn has been very favorable for the U.S. currency. My readers may question what kind of luck I am referring to, since the dollar has experienced only weak demand. In my view, the luck lies in the fact that the market has not begun to sell off the dollar to the same extent as it did in the first half of 2025.

It is worth recalling that the market largely ignored two Federal Reserve rate cuts in the autumn. It also disregarded the looming "shutdown" or the new tariffs imposed by Donald Trump. Therefore, the U.S. dollar could have resumed its decline, but by chance, thanks to market inaction in recent months and its status as a "world reserve currency," it has avoided such a fate. But for how long?

One of the crucial factors influencing EUR/USD pricing for the next year will be the monetary policies of the European Central Bank and the Federal Reserve. I remind you that the last Fed meeting concluded with the third consecutive rate cut, and Jerome Powell indicated the need to wait some time to assess the state of the labor market and the impact of the three rounds of rate cuts. However, when Powell addressed the press, he did not have up-to-date information on inflation, unemployment, and the labor market. The last two reports for November were released on Tuesday this week. The inflation report will come out on Thursday. Therefore, on Thursday, the market will be able to evaluate new perspectives on Fed policy for next year.

Market participants currently do not expect a rate cut in January 2026, but what if the consumer price index slows? It is also essential to understand that the Fed may take a break for only one meeting; thereafter, the FOMC may have to resume the easing cycle if the labor market situation continues as it has for the last 3-4 months. Thus, while the dollar may not need to fear new easing in January, what about beyond that? Especially after May, when Powell steps down and a "Trump appointee" takes his place.

Wave Analysis for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the pair continues to build an upward trend segment. Trump's policies and the Fed's monetary policy remain significant factors contributing to the long-term decline of the U.S. dollar. The targets for the current trend segment may reach the 25 figure. The current upward wave structure is beginning to develop, and I hope we are witnessing the construction of an impulsive wave set that is part of the global wave 5. In this case, we should expect growth to reach precisely the 25 figure, as I mentioned earlier.

Wave Analysis for GBP/USD:

The wave structure of the GBP/USD pair has changed. We continue to deal with an upward, impulsive segment of the trend, but its internal wave structure has become more 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 progression with initial targets around the 38 and 40 figures.

In the short term, I anticipated the construction of wave 3 or c with targets located around 1.3280 and 1.3360, corresponding to 76.4% and 61.8% Fibonacci retracements. These targets have been reached. Wave 3 or c continues its development, and the current wave set is beginning to take on an impulsive character. Therefore, we can expect a further increase in quotes with targets around 1.3580 and 1.3630.

Key Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often change.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There can never be 100% certainty about the direction of movement. Don't forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

The material has been provided by InstaForex Company - www.instaforex.com