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The EUR/USD pair is once again at a crossroads, and it seems traders have already made their choice. This week the price reacted to the latest bearish imbalance 11. The reaction was precise but uncertain and weak—yet it was still a reaction. Thus, a sell signal was generated. Even after two short upward price movements from lower levels, the euro has been declining for the fourth consecutive day. Of course, the main reason is geopolitics. If the situation in the Middle East had not deteriorated so sharply, we most likely would have seen a continuation of the bullish trend. Let me remind you that there are no particularly strong reasons for the growth of the U.S. currency besides geopolitics. However, geopolitics alone is more than enough for traders to massively buy the dollar.
In my opinion, without a new escalation of the conflict in the Middle East, it will be difficult for the dollar to continue rising and for bears to continue their offensive. However, the last few days have shown that traders are quite satisfied with the current situation to keep buying the dollar without hesitation. The situation in the Middle East is not escalating further, but it is certainly not improving either. This week it became known that Iran seized six tankers in the Persian Gulf, confirming its intention to block passage through the Strait of Hormuz for as long as it considers necessary. Of course, Donald Trump could now launch new strikes against Iran, but what would that change? American missiles might eliminate Iran's new leader, but the very next day someone else with the same anti-American views would likely take his place.
Last week a bearish imbalance 11 was formed, and this week it was executed. The sell signal emerged rather quickly under the pressure of the geopolitical background. Now bulls can only hope for new liquidity grabs from the last three lows: 1.1508, 1.1470, and 1.1392. But if geopolitics does not improve, even that may not save the bulls.
The graphical picture still signals bullish dominance for now. The bullish trend technically remains intact, but currently bullish traders lack sufficient reasons for a new advance. For the euro to rise again, the war in Iran must begin to subside, and prices for oil and gas must start to decline. To open new buy positions, traders need either new bullish patterns or at least a liquidity grab from the last three bearish swings.
The news background on Friday supported almost anyone—except the dollar. The U.S. economy in the fourth quarter grew not by 1.4%, but by only 0.7%, and the third (final) estimate could be even lower. The increase in durable goods orders was 0%, while the market expected a stronger result. Even these two reports alone should have been enough to trigger a decline in the dollar. But bears continue attacking, ignoring everything except geopolitics.
Over the past months, bulls have had plenty of reasons to attack, and even the start of the war in the Middle East has not reduced their number. Structurally and globally, the policy of Donald Trump, which caused a sharp decline in the dollar last year, has not changed. In the near term, the U.S. currency may rise due to investor flight from risk, but this factor cannot support it indefinitely.
At the same time, the dovish outlook for monetary policy by the Federal Open Market Committee, Trump's trade war with much of the world, the weakness of the U.S. labor market, two government shutdowns, U.S. military aggression, the criminal case against Jerome Powell, slowing GDP growth, and other unfavorable developments for the United States have not disappeared because of the conflict with Iran.
I still do not believe in a long-term bearish trend. The dollar has received temporary support from the market, but it is not certain that this situation will last for long. However, the bullish trend has been broken, and this must be acknowledged—even if it is unfortunate. There is still a chance for a liquidity grab and a trend resumption, but geopolitics continues to weigh heavily on the EUR/USD pair and push it downward.
Economic Calendar for the United States and the Eurozone
United States
On March 16, the economic calendar contains only one relatively minor entry, but the market continues to ignore most reports. The influence of the news background on market sentiment on Monday may again be extremely weak.
EUR/USD Forecast and Trader Advice
In my view, the pair is still in the process of forming a bullish trend. The information background sharply changed direction two weeks ago, but the trend itself still remains. Therefore, traders now need new patterns and signals to form short-term forecasts.
If these signals are bearish (which is more likely), it is important to remember that the overall trend remains bullish, and the geopolitical factor typically does not have long-term influence.
If bullish signals appear (which would be far preferable), traders will gain the opportunity to open new buy positions that align with the trend.
This week a sell signal was formed, but predicting how long geopolitics will continue to support the bears is practically impossible.
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