04.05.202613:00 Forex Analysis & Reviews: EUR/USD: May 4th – Geopolitical factors influenced the market again

The wave structure on the hourly chart currently raises no concerns. The last completed downward wave broke the previous low by only a few points, while the last upward wave broke the previous peak. Thus, the trend is once again shifting to "bullish." A temporary truce between Iran and the United States supported the bulls, allowing them to form a strong upward wave. However, now, three weeks later, it can be said that geopolitics is once again moving in a completely different direction. Therefore, bullish attacks may be restrained.

There was little economic data in the Eurozone and the U.S. on Friday; I can only note the ISM Manufacturing PMI for the United States. I cannot say that this index turned out weak, although traders expected a stronger reading than 52.7 points. However, compared to the previous month, no decline in the index was recorded, so its value can be considered neutral. Nevertheless, traders barely noticed this economic report, because in the evening it became known about a possible escalation of the conflict between Iran and the United States. Another proposal from Tehran to reach an agreement and unblock the Strait of Hormuz was rejected by Donald Trump, and in my opinion, the longer negotiations drag on without any progress, the higher the likelihood of renewed hostilities. Oddly enough, oil prices have declined slightly in recent days, but overall they remain close to their peak levels. Thus, I would not draw conclusions about falling energy prices in global markets. There are no grounds for a decline: the Strait of Hormuz remains closed, negotiations between the U.S. and Iran are at a deadlock, global energy reserves are shrinking rapidly, and there is no light at the end of the tunnel yet.

On the 4-hour chart, the pair reversed in favor of the U.S. dollar and began a downward movement toward the 76.4% corrective level at 1.1617. A rebound from the 1.1778 level again allows expectations of some decline. However, in my view, the hourly chart is currently more informative due to the weakness of movements. Bulls seized the initiative in the market about a month ago, but are now searching for new growth drivers. No emerging divergences are observed today on any indicator.

Commitments of Traders (COT) report:

During the last reporting week, professional traders closed 316 Long positions and opened 5,296 Short positions. Over seven weeks in February and March, the total advantage of the bulls evaporated, and over the last five weeks the situation has somewhat stabilized. The total number of Long positions held by speculators now stands at 217 thousand, while Short positions amount to 181 thousand. The gap is once again widening in favor of the euro.

Overall, in the long term, major players continue to look with strong interest toward the euro. Of course, events of various kinds around the world—of which there has been no shortage in recent years—affect investor sentiment. In particular, the market's attention remains focused on the Middle East, where the war has only been paused, not ended. Thus, in the near future, the euro and dollar exchange rates will depend not on Federal Reserve or ECB monetary policy or economic data, but on developments in Iran.

News calendar for the U.S. and the Eurozone:

• Germany – Manufacturing PMI (07:55 UTC).
• Eurozone – Manufacturing PMI (08:00 UTC).

On May 4, the economic calendar contains two secondary entries. The impact of the news background on market sentiment on Monday will once again be absent.

EUR/USD forecast and trader advice:

Selling the pair is possible today upon a rebound from the 1.1745 level on the hourly chart, with a target of 1.1666. I previously recommended buying on a rebound from 1.1666 with a target of 1.1745; that target was reached. New buying positions can be considered upon a close above 1.1745, with a target of 1.1824.

Fibonacci levels are drawn from 1.2082–1.1410 on the hourly chart and from 1.1474–1.2082 on the 4-hour chart.