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On Friday, EUR/USD consolidated above the 76.4% retracement level at 1.1551 and continues to rise toward the next retracement level of 100.0% at 1.1620. A rejection from this level would favor the US dollar and a moderate decline toward the 1.1551 level. Consolidation above 1.1620 would increase the likelihood of further gains in the euro toward the next Fibonacci level of 127.2% at 1.1700.
The wave structure on the hourly chart remains bullish. The latest completed downward wave did not break the previous low, while the new upward wave has already broken the previous high. All waves are currently extremely small in size. Geopolitical developments have raised hopes that the Strait of Hormuz could reopen, while Iran, the US, and Oman are attempting to reach an agreement on control of the strategically important strait. However, the chances of success are limited, while the market's hawkish expectations regarding FOMC monetary policy are easing.
The fundamental backdrop did not create any problems for bullish traders on Friday. The only report that could have halted their advance was the second-quarter EU GDP report, but the data were not worse than market expectations, which proved sufficient. Traders do not currently expect much from the European economy, so a reading in line with or above forecasts is quite satisfactory for them. Both US reports, on retail sales and the University of Michigan consumer sentiment, showed weaker readings than traders had expected. As a result, dollar selling continued in the second half of the day. By the end of the day and the week, the euro had reached two-month highs, while the technical picture points to a highly likely continuation of the bulls' advance. In my view, they have everything they need for this. Following the July inflation and producer-price reports, the chances of FOMC monetary policy tightening have become even lower, and this was the factor that had supported the bears in recent months. However, the market no longer expects policy tightening in September, so the dollar has been declining for several weeks in a row.
On the 4-hour chart, the pair consolidated above the downward trend channel, suggesting not merely a bullish attack but a full-fledged bullish advance and trend. A rebound from the 1.1514 level once again allows the bulls to resume their advance. No new emerging divergences are currently observed in any of the indicators. Consolidation above the 1.1578 level suggests further growth toward the 50.0% Fibonacci level at 1.1630.
During the latest reporting week, professional traders closed 4,661 Long positions and 2,742 Short positions. Over the seven weeks in February and March, the bulls' overwhelming advantage disappeared due to the war in Iran, while over the past twenty weeks the situation has become more balanced amid the supposed ceasefire and market hopes for an end to the war. The total number of Long positions held by speculators currently stands at 197,000, while the number of Short positions stands at 257,000. The bears are once again taking the lead.
Overall, over the long term, large market participants continue to show greater interest in the euro. Of course, various events around the world, of which there has been no shortage in recent years, affect investor sentiment. In particular, the market is currently keeping a close eye on the situation in the Middle East, where the war repeatedly appears to end and then resumes. The market initially ignored the ceasefire and then the resumption of the war. Thus, geopolitical developments no longer determine the fate of the dollar on their own.
On August 17, the economic calendar contains no scheduled events. The economic backdrop will have no impact on market sentiment on Monday.
Buying the pair was possible following a close above 1.1551 on the hourly chart, with a target of 1.1620. These trades can be kept open today. Selling is possible if the pair rejects the 1.1620 level on the hourly chart, with a target of 1.1551.
The Fibonacci levels are drawn from 1.1620–1.1325 on the hourly chart and from 1.1411–1.1850 on the 4-hour chart.
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