The new week has begun with another round of optimistic news for forex market participants. Donald Trump once again stated that the parties to the conflict are approaching an agreement. According to him, only a few details remain to be coordinated. However, just on Tuesday, U.S. naval forces struck Iranian boats and missile installations located in the southern Strait of Hormuz. The most ironic part of the situation is that just hours before this escalation and the ceasefire breakdown, the U.S. president reiterated that the negotiations were going well.

According to U.S. military representatives, Iranian boats were attempting to mine the strait, which is why the "strike was defensive." Personally, I find it difficult to understand what constitutes a "defensive strike," but one can hear many such formulations from American officials. The U.S. Central Command announced that the strikes were aimed at protecting American vessels from the Iranian threat in the strait; however, the U.S. continues to demonstrate restraint during the ceasefire declared over a month ago. The Iranian news agency Nour News reported the deaths of several Iranian military personnel.

In my view, the ceasefire between Iran and the U.S. is once again on the verge of collapse following Tuesday's incident. Many American media outlets believe there is still hope for a ceasefire and a deal, but the market's optimism is sinking once again. It is noteworthy that in recent weeks, Trump has not only talked about a high likelihood of signing an agreement with Iran but has also repeatedly warned that if the deal falls through, Washington will deliver new devastating strikes. As we can see, new strikes occurred without the deal being broken, and Tehran could again see that most agreements exist only on paper.

In reality, the Tuesday incident does not have me taking a side. I do not know, and no one knows, whether Iranian boats actually mined the Strait of Hormuz, and I would be hesitant to take the word of U.S. Central Command officials just as I would with Trump. An Iranian foreign ministry representative, Esmail Baghaei, stated that the parties have indeed made progress in negotiations, but the deal is not "inevitable." After Tuesday's events, it certainly is not inevitable. There has been no reaction from Iran to the U.S. strikes so far, but it may come. The likelihood of declines in the EUR/USD and GBP/USD pairs has increased this week.

Wave Picture for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that the instrument remains within an upward section of the trend (lower picture), while in a more short-term perspective, it is within a corrective structure. The corrective wave set a-b-c appears to be complete. Consequently, the construction of wave 3 or C continues, which may be part of wave C. The entire wave C (if the current wave marking is correct) may complete its formation much below the 14 figure. However, for such a scenario, strong geopolitical support will be required. Otherwise, the downward wave set may take the form of a-b-c and be completed around the 1.1578 mark.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has become clearer over time. We now see a distinct upward structure on the charts, which is complete. Therefore, I expect a downward wave set to form, which may take an impulsive form and align with the impulsive structure of the EUR/USD instrument. Consequently, after a 300-pip decline, a corrective wave can be expected, followed by a new drop towards the 30-31 figures. I had warned in advance about the new decline of the pound, but I expected a correction. However, the harsh reality is that this may be a full-fledged impulsive structure, given the strength of its first wave.

Main Principles of My Analysis:

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