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The EUR/USD pair remains within the local bearish impulse that began on April 17, but with each passing day, the bulls are getting closer to establishing their own trend. To do so, they need to invalidate bearish Imbalance 17, which could have happened as early as a week ago. However, at the most critical moment, the bulls lost momentum and have been unable to consolidate above Imbalance 17. The fundamental backdrop remains unfavorable for the bears. Traders did not receive any clear signals from Kevin Warsh indicating a readiness to tighten monetary policy. In July, the number of new Nonfarm Payrolls jobs decreased by 23,000, marking a decline for the fourth consecutive month. Inflation slowed by as much as 0.7% in June. All of this suggests that FOMC monetary policy tightening should not be expected in September. As I warned in recent weeks, if the labor market once again shows weak results, this would be a sufficiently strong reason for the Fed to abandon a rate hike. Of course, this cannot be stated with certainty, but I am almost certain that we will not see policy tightening in the near future. Traders now only need to wait for the July inflation report, after which they will be able to stop speculating about the Fed's decision until early September, when the next Nonfarm Payrolls report is released. The bulls need a weak inflation report that would further reduce the chances of monetary policy tightening. The bears need a strong inflation report that would restore the market's expectations of an FOMC rate hike.
Let me remind you that expectations of Fed monetary policy tightening are currently just expectations and may change in response to geopolitical developments or economic data. The latest US labor market data showed weak figures, inflation slowed, and GDP growth decelerated. These three factors raise doubts about an FOMC rate hike in the foreseeable future. If Donald Trump is not misleading the markets and the Strait of Hormuz is reopened, this would provide another reason for the market to sell the safe-haven dollar, which would become less attractive if the conflict were at least partially resolved.
Geopolitics remains a secondary consideration for traders but continues to affect the economy. Tehran and Washington are still negotiating through intermediaries, if this can even be called negotiations. If the Strait of Hormuz is reopened, oil prices will decline and inflation will slow. In this case, the probability of FOMC monetary policy tightening will become even lower, as inflation will continue to decelerate, although it is already relatively low.
The current chart structure indicates that the bearish impulse that began on April 17 remains in place. Bearish Imbalance 17 was tested, but the reaction to it was weak. Therefore, this pattern may be invalidated. A bullish Imbalance 19 has also formed, allowing the bulls to remain optimistic about the future. If Imbalance 17 is invalidated while Imbalance 19 remains untested, traders will have to wait for new bullish patterns before considering long positions.
The economic backdrop on Tuesday was extremely weak. Traders did not consider US existing home sales or the weekly ADP report worth paying attention to, the latter being less important than Nonfarm Payrolls in any case.
There are still numerous reasons for the bulls to advance in 2026, and the war in the Middle East has not reduced their number. Structurally and globally, Trump's policies, which led to a significant decline in the dollar last year, have not changed. At present, I do not see any significant factors supporting the US currency, despite the FOMC's hawkish stance. Nevertheless, the bears continue to dominate for now, while there are no bullish signals.
US and EU Economic Calendar:
On August 12, the economic calendar contains two releases, one of which is extremely important. The economic backdrop could have a strong impact on market sentiment during the second half of the day on Wednesday.
EUR/USD Forecast and Trading Advice:
In my view, the pair remains in the process of forming a bullish trend. The fundamental backdrop shifted sharply in favor of the bears five months ago, but the trend itself cannot be considered invalidated or complete. Therefore, the bulls could well continue their advance after two liquidity sweeps below clearly defined lows. A sell signal may have formed within Imbalance 17, but the reaction was weak, so this pattern will most likely be invalidated. A bullish signal may form within Imbalance 19, but the price is moving increasingly farther away from this pattern. Despite the fairly strong rise in the euro, there are currently no suitable levels from which to open long positions. It is necessary to wait for new bullish patterns to form, for Imbalance 19 to be tested, or to trade the British pound instead.
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