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On Friday, the EUR/USD pair first underwent a corrective pullback before resuming its upward movement and testing the 76.4% Fibonacci retracement level at 1.1551. A rebound from this level would favor the U.S. dollar and a moderate decline toward 1.1507 and 1.1472. Consolidation above 1.1551 would increase the likelihood of continued growth toward the next Fibonacci level at 100.0% – 1.1620.
The wave structure on the hourly chart has turned bullish. The most recently completed downward wave broke below the previous low, while the latest upward wave surpassed the previous high. The geopolitical situation remains persistently negative, as Iran and the United States continue blockades in the Strait of Hormuz, while negotiations are currently not taking place. Traders had been expecting support from the Federal Reserve for about a month, but those hopes were dashed last week. After a prolonged pause, the bulls have gone on the offensive.
Friday's news flow once again favored the euro. It is worth recalling that a day earlier, second-quarter GDP reports released in both Europe and the United States showed slowing economic growth in the U.S. and accelerating growth in the Eurozone. Combined with rising inflation in the EU and the ECB's willingness—unlike the Federal Reserve—to tighten monetary policy further, the outlook for the euro remains highly supportive. In my view, the bulls could have launched their offensive well before the end of July. However, events unfolded as they did. This week, market attention will focus on the U.S. labor market and unemployment data. If these reports also fail to deliver strong results, the dollar is likely to continue weakening. The labor market is currently the dollar's last remaining source of support. If July employment data proves strong, the Federal Reserve is likely to shift its focus back to inflation, potentially paving the way for renewed monetary tightening in September. If the labor market disappoints again, Kevin Warsh and his colleagues are unlikely to raise interest rates.
On the 4-hour chart, the pair has consolidated above the descending trend channel, suggesting not merely another bullish attempt but the beginning of a sustained upward trend. Consolidation above the 76.4% Fibonacci level at 1.1514 supports the case for further gains toward the 61.8% Fibonacci retracement level at 1.1578. No emerging divergences are currently observed on any indicator.
Commitments of Traders (COT) Report:
During the latest reporting week, professional traders closed 15,490 long positions and opened 15,691 short positions. Over the seven weeks of February and March, the bulls' overwhelming advantage disappeared because of the war involving Iran, while over the past eighteen weeks the positioning has become more balanced amid a fragile ceasefire and market hopes for an end to the conflict. Speculators currently hold a total of 205,000 long positions and 277,000 short positions. The bears are once again regaining the upper hand.
Overall, from a long-term perspective, large market participants continue to view the euro with considerable interest. Naturally, the wide range of global events—which have been in no short supply in recent years—continues to influence investor sentiment. In particular, the market remains focused on developments in the Middle East, where hostilities repeatedly subside and then resume. The market initially ignored the announcement of a ceasefire and later also ignored the renewed escalation of the conflict. As a result, geopolitical factors are no longer the sole driver of the U.S. dollar's direction.
Economic Calendar for the United States and the Eurozone:
The economic calendar for August 3 contains only two scheduled releases, with the ISM Manufacturing PMI being the key event. As a result, macroeconomic data is expected to influence market sentiment mainly during the second half of Monday's trading session.
EUR/USD Forecast and Trading Tips:
Long positions were justified following a rebound from 1.1472 or after consolidation above 1.1507 on the hourly chart, targeting 1.1551. Today, long positions may be considered after consolidation above 1.1551, with a target at 1.1620. Short positions may be considered following a rebound from 1.1551 on the hourly chart, targeting 1.1507 and 1.1472.
The Fibonacci retracement levels are drawn from 1.1620 to 1.1325 on the hourly chart and from 1.1411 to 1.1850 on the 4-hour chart.
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