Demand for the euro continues to fall against the backdrop of the political crisis in France and the sharp drop in Germany's industrial production. In my view, the market is not currently factoring in all the available elements, but let's assume it is pricing them in one by one. This week, most of the news has come from the Eurozone, but in the second half of the week, the situation will likely shift in the opposite direction.

Let me remind you that ECB President Christine Lagarde has already spoken three times this week. In some of her speeches, she avoided the subject of monetary policy, while in others she said she was satisfied with the current level of inflation, though minor upside risks remain. Also this week, the French Prime Minister resigned, no replacement has yet been found, and Emmanuel Macron has not announced snap parliamentary elections.

Overall, it can be said—with some reservations—that the decline in demand for the euro is logical. However, in my opinion, the dollar still faces factors that the market is not accounting for. For example, the ECB does not intend to lower interest rates any further, since there is no need to do so. Lagarde did not say this outright, but her "deputy," Luis de Guindos, stated this on Monday. According to de Guindos, inflation risks in the Eurozone are balanced and the regulator's forecasts are materializing. Based on this, there is no need to change monetary policy in the near future.

Thus, it is highly likely that the ECB has completed its cycle of monetary easing. If the ECB will no longer cut rates, the euro loses one of its pressure factors. In the first half of the year, this factor was irrelevant for market participants, and now we see the euro declining in a way that also does not correspond to ECB officials' statements.

How long will the market continue to price in the political crisis in France? Logically, not for very long, since it is not such a significant event. The wave structure of the EUR/USD instrument will probably shift somewhat, but it will take a few days to see where the current downward wave ends.

Wave Picture for EUR/USD:

Based on the EUR/USD analysis, I conclude that the instrument continues building an upward trend section. The wave structure still fully depends on the news background linked to Trump's decisions and the domestic and foreign policies of the new White House Administration. The targets of the current trend section may reach the 1.25 level. At the moment, a corrective wave 4 is forming, which may already be complete. The upward wave structure remains valid. Therefore, in the near term, I consider only buying opportunities. By the end of the year, I expect the euro to rise to 1.2245, which corresponds to the 200.0% Fibonacci level.

Wave Picture for GBP/USD:

The wave structure of the GBP/USD instrument has changed. We are still dealing with an upward impulsive trend section, but its internal wave structure is becoming unreadable. If wave 4 takes on a complex three-wave form, the structure will normalize, but in this case, wave 4 will turn out to be much more complex and extended than wave 2. In my view, the best approach now is to work from the 1.3341 level, which corresponds to the 127.2% Fibonacci level. Two failed attempts to break through this level indicated the market's readiness for new buying. The instrument's targets remain not below the 1.38 level.

The Main Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are hard to trade and often change.
2. If there is no confidence in what is happening in the market, it is better not to enter.
3. Absolute certainty about market direction never exists. Always use protective Stop Loss orders.
4. Wave analysis can be combined with other forms of analysis and trading strategies.