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The EUR/USD pair reversed in favor of the US dollar on Monday and consolidated below the 76.4% retracement level at 1.1551. Thus, the decline may continue today toward the next Fibonacci level of 61.8% at 1.1507. Conversely, consolidation above 1.1551 would favor the EU currency and a resumption of growth toward the 100.0% retracement level at 1.1620.
The wave situation on the hourly chart remains bullish. The latest completed downward wave broke below the previous low, while the latest upward wave also broke above the previous high. Geopolitical developments have raised hopes that the Strait of Hormuz will be reopened, while Iran, the United States, and Oman are negotiating control over the strategically important strait. Thus, geopolitics is currently not working in the dollar's favor, while the market's hawkish expectations regarding FOMC monetary policy are easing.
There was no significant news flow on Monday, while traders continue to debate whether the FOMC will raise interest rates in September. The most interesting point is that there is no definitive answer to this question, nor can there be one at this stage. The US labor market has been weakening for four consecutive months, but inflation also declined in June. The July inflation report will be released tomorrow, and before the Fed's September meeting, August reports on both the labor market and inflation will also be released. It is precisely the August data that will make it possible to draw a final conclusion about the possible actions of Kevin Warsh and his colleagues. However, even the August data will not allow us to be certain about the Fed's decision. The situation remains difficult and is further complicated by highly uncertain geopolitical prospects. If the Strait of Hormuz is reopened by then, inflation will continue to decline, and the FOMC will not need to tighten monetary policy. If the Strait of Hormuz remains closed, it is difficult to say how inflation will behave, but the labor market currently does not allow for hawkish decisions. And the Fed is not particularly eager to make hawkish decisions, given Donald Trump's constant criticism.
On the 4-hour chart, the pair has consolidated above the downward-sloping trend channel, suggesting not merely a bullish attack but a full-fledged bullish advance and trend. The rejection from 1.1578 allowed the bears to begin a weak attack, but a rejection from 1.1514 would once again give the bulls strength. No new emerging divergences are observed in any of the indicators.
Commitments of Traders (COT) Report:
During the latest reporting week, professional traders closed 3,128 Long positions and 17,484 Short positions. Over the seven weeks in February and March, the bulls' overwhelming advantage disappeared because of the war in Iran, while over the past nineteen weeks the situation has evened out amid the purported ceasefire and market hopes for an end to the war. The total number of Long positions held by speculators now stands at 202,000, while the number of Short positions is 260,000. The bears are once again taking the lead.
Overall, over the long term, major players continue to show greater interest in the euro. Undoubtedly, events of various kinds 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 ends and then resumes again. The market initially ignored the ceasefire and subsequently ignored the resumption of the war. Thus, geopolitics no longer determines the dollar's fate on its own.
US and EU Economic Calendar:
On August 11, the economic calendar contains one secondary release. The impact of the economic backdrop on market sentiment on Tuesday will be extremely weak or nonexistent.
EUR/USD Forecast and Trading Advice:
Buying the pair is possible today if the hourly chart consolidates above 1.1551, with a target of 1.1620. Sell trades were possible following an hourly close below 1.1551, with targets at 1.1507 and 1.1472. These trades can remain open today.
The Fibonacci 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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