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The EUR/USD pair continued its decline on Wednesday after rebounding from the 1.1786 level and consolidating below the 50.0% corrective level at 1.1745. Thus, the decline of the euro may continue today toward the 38.2% corrective level at 1.1666. A rebound from 1.1666 would favor the euro, preserve the bullish trend, and support some growth toward the 1.1745 and 1.1786 levels.
At the moment, the wave situation on the hourly chart remains simple. The last completed upward wave broke above the previous peak by only a few points, while the latest downward wave has already broken the previous low. Thus, the trend remains bullish, but it is very unstable — all recent waves are approximately equal in size, and the movement has shifted into a sideways range. The temporary truce between Iran and the United States supported the bulls, but now, five weeks later, it can be said that geopolitics is moving toward preserving the conflict. Therefore, bullish attacks may remain limited or stop altogether.
On Wednesday, the dollar continued receiving favorable developments. Let me remind you that at the beginning of the week, the deal between Iran and the United States (as well as the temporary truce) was hanging by a thread. Then, the U.S. inflation report not only pointed to strong growth but also exceeded traders' expectations. Yesterday, the U.S. Producer Price Index jumped by 1.4% month-over-month and 6.0% year-over-year, far above forecasts. Inflation in the U.S. is accelerating and now poses a serious threat to the economy.
The Federal Reserve does not plan to tighten monetary policy in 2026. At best, the FOMC may decide on one rate hike by the end of the year, in December. Therefore, there are essentially no tools available to curb inflation. If the Strait of Hormuz remains blocked, inflation will continue rising along with oil and gas prices. As a result, the U.S. economy may begin slowing down, retail sales and consumer spending could decline, and Americans' real incomes may also fall. Ultimately, the economy could show much sharper deceleration than in the fourth quarter of last year. However, the Fed is also unlikely to cut interest rates, as that would lead to even faster growth in consumer prices.
On the 4-hour chart, the pair once again rebounded from the 50.0% corrective level at 1.1778, reversed in favor of the U.S. dollar, and declined toward the 61.8% Fibonacci level at 1.1706. A rebound from 1.1706 would allow traders to expect a resumption of the bullish trend toward 1.1849 and 1.1938, which formed after the pair exited the descending trend channel. No emerging divergences are currently observed on any indicators.
Commitments of Traders (COT) Report:
During the latest reporting week, professional traders opened 383 long positions and 3,893 short positions. Over seven weeks in February and March, the bulls' overwhelming advantage disappeared, while over the past six weeks the situation has stabilized somewhat. The total number of long positions held by speculators now stands at 217,000, while short positions amount to 185,000. The gap is once again widening in favor of the euro.
Overall, in the long term, major players continue to show strong interest in the euro. Of course, various global events — which have certainly not been lacking in recent years — continue to influence investor sentiment. In particular, market attention remains focused on the Middle East, where the war has only been paused, not ended. Therefore, in the near term, the euro and dollar exchange rates will depend less on Fed or ECB monetary policy and economic data, and more on developments in Iran.
Economic Calendar for the U.S. and the Eurozone:
The economic calendar for May 14 contains three events, none of which are expected to generate significant interest. Therefore, the impact of the news background on market sentiment on Thursday is likely to remain weak.
EUR/USD Forecast and Trading Tips:
Selling opportunities were available after the rebound from 1.1786 and after consolidation below 1.1745 on the hourly chart, targeting 1.1666. These positions may still be kept open today.
I would recommend new buy positions after consolidation above 1.1745 with targets at 1.1786 and 1.1824, or after a rebound from 1.1666.
The Fibonacci grids are based on 1.2082–1.1410 on the hourly chart and on 1.1474–1.2082 on the 4-hour chart.
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