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On Friday, the EUR/USD pair continued to trade above the 100.0% Fibonacci retracement level at 1.1409, maintaining a short-term bullish bias. Therefore, the upward move may resume today, with the next target at the 76.4% Fibonacci retracement level of 1.1514. A consolidation below 1.1409 would favor the U.S. dollar and increase the likelihood of a decline toward the 127.2% Fibonacci extension level at 1.1290.
The wave structure on the hourly chart remains bearish. The most recently completed downward wave broke below the previous low, while the latest upward wave has not yet exceeded the previous high and is still developing. The geopolitical backdrop has improved considerably in recent weeks, as military activity in the Middle East has at least paused, and Iran and the United States have signed a preliminary agreement. A confirmed break above 1.1620, or the formation of two consecutive bullish waves, would signal the end of the current bearish trend.
There was no significant news flow on Friday in either the Eurozone or the United States. U.S. markets were closed for the holiday, resulting in the absence of economic releases as well as closed stock exchanges and banks. As a result, trading activity remained subdued.
The economic calendar is also relatively light this week, meaning the market will largely continue to react to existing information. Geopolitical developments currently attract less attention from traders, as negotiations between Iran and the United States regarding a nuclear agreement, the Strait of Hormuz, and the unfreezing of Iranian assets are progressing slowly, with most reports coming from unofficial sources.
As a result, the market's focus has shifted almost entirely to the FOMC. However, the outlook remains far from clear. Three weeks ago, the Federal Reserve signaled its willingness to maintain a tighter monetary policy stance. Since then, however, doubts have increased. The U.S. labor market has weakened again, while inflation risks have eased significantly following the ceasefire between Iran and the United States. Against this backdrop, I expect the U.S. dollar to weaken moderately this week.
On the 4-hour chart, the pair has consolidated above the 100.0% Fibonacci retracement level at 1.1411, allowing traders to anticipate a further advance toward the 76.4% Fibonacci retracement level at 1.1514. A renewed consolidation below 1.1411 would increase the probability of another decline toward the 127.2% Fibonacci extension level at 1.1291. No emerging divergences are currently visible on any technical indicator.
During the latest reporting week, institutional traders opened 19,327 new long positions and 23,522 new short positions. Over the seven-week period in February and March, the bulls' overwhelming advantage disappeared amid the conflict involving Iran. During the subsequent thirteen weeks, market positioning gradually rebalanced following the suspension of hostilities in the Middle East, and bulls have once again regained the upper hand. Speculative traders currently hold approximately 247,000 long positions compared with 217,000 short positions.
From a longer-term perspective, large institutional participants continue to favor the euro. Although numerous global events continue to influence investor sentiment, the market's primary focus remains on developments in the Middle East, where military operations have paused and meaningful negotiations are underway that could potentially lead to a lasting peace agreement. Nevertheless, the market continues to pay little attention to the improving geopolitical environment, as well as to several other factors that remain supportive of the euro.
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The economic calendar for July 6 contains three scheduled events, with the ISM Services PMI expected to be the most influential. Consequently, the economic backdrop is likely to have the greatest impact on market sentiment during the second half of Monday.
Long positions became valid after the pair consolidated above 1.1409 on the hourly chart, with a target at 1.1514. These positions may continue to be held today. Short positions may be considered if the pair consolidates below 1.1409 on the hourly chart, targeting 1.1290.
Fibonacci levels are drawn from 1.1409–1.1850 on the hourly chart and from 1.1411–1.1850 on the 4-hour chart.
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