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EUR/USD resumed its decline on Monday and consolidated below the 127.2% retracement level at 1.1220. As of Tuesday morning, the euro had returned to this level. Thus, a rebound from this level would again favor the US dollar and a resumption of the decline toward the next retracement level of 161.8% at 1.1086. Consolidation above 1.1220 would allow traders to expect some growth toward the 100.0% Fibonacci level at 1.1325.
The wave structure on the hourly chart remains bearish. The latest completed upward wave failed to break the previous high, while the latest downward wave broke the previous low and has continued forming for the fourth consecutive week. Following the September FOMC meeting, traders expect at least one more monetary policy tightening by the end of the year and another one next year. This factor continues to provide very strong support for the US currency.
The fundamental backdrop on Monday once again supported bearish traders. This time, the focus was not on economic reports but on geopolitical developments and government-related problems. France published its 2027 budget, which revealed a significant deficit that Paris plans to cover through higher taxes and spending cuts. This is standard practice, but traders concluded that one of the EU's largest economies was facing problems, which resulted in further losses for the euro. A second war has also begun in the Middle East. This time, the conflict is in Yemen, where the local government decided, after 12 years, to regain control of the capital and liberate territories from the illegal Houthi movement. Tensions in the region are rising again, as the Bab el-Mandeb Strait is located dangerously close. A blockade of the strait could cause another oil shortage and a sharp increase in energy prices. Thus, traders had reasons to both sell the euro and buy the dollar on Monday, and that is what they did. On Tuesday morning, bullish traders launched a weak counterattack, but the initiative remains with the bears.
On the 4-hour chart, the pair consolidated below the 127.2% Fibonacci level at 1.1220, allowing for expectations of a continued decline in the euro toward the next 161.8% retracement level at 1.1088. No new emerging divergences are currently observed, but they are not necessary, as traders would ignore them anyway.
Commitments of Traders (COT) Report:
During the latest reporting week, professional traders opened 17,475 Long positions and 28,397 Short positions. The total number of Long positions held by speculators currently stands at 238,000, while the number of Short positions stands at 301,000. The bears remain in control, and the euro continues to be sold more often than bought, which is explained by the complex geopolitical situation in the Middle East and Kevin Warsh's strong determination to achieve lower inflation. The market currently believes that inflation will be reduced to 2% by any available means.
Overall, over the long term, major market participants continue to show strong interest in the euro. Events of various kinds around the world, of which there has been no shortage in recent years, are undoubtedly affecting investor sentiment and putting pressure on risk-sensitive currencies. 2026 could become a record year in terms of the number of events that could not have been predicted in advance. Therefore, traders have no choice but to adjust their strategies as conditions change.
News Calendar for the United States and the European Union:
The October 6 economic calendar contains two entries, neither of which can be considered important. The impact of the economic backdrop on market sentiment on Tuesday will be absent.
EUR/USD Forecast and Trading Tips:
Buying the pair is possible today if it consolidates above 1.1220 on the hourly chart, with a target of 1.1325. Selling is possible following a rebound from 1.1220, with the target at the 1.1081–1.1086 support level.
The Fibonacci grids are drawn from 1.1325–1.1712 on the hourly chart and from 1.1325–1.1712 on the 4-hour chart.
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