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The EUR/USD pair confirmed a breakout above the 100.0% Fibonacci retracement level at 1.1409 on Thursday, allowing traders to expect a continuation of the upward move toward the next Fibonacci level at 1.1514 (76.4%). A renewed consolidation below 1.1409 would favor the U.S. dollar, but at the moment I would not base trading decisions on this level. Too many false signals have formed around it recently.
The wave structure on the hourly chart remains bearish. The latest completed downward wave broke below the previous low, while the latest upward wave has yet to exceed the previous high. The geopolitical situation has improved significantly in recent weeks, as hostilities in the Middle East have at least come to a halt, and Iran and the United States have signed some form of agreement. A confirmed end to the bearish trend could be considered only after a break above the 1.1620 high or after the formation of two consecutive bullish waves.
Thursday's news flow strongly favored the bulls. I am surprised that the euro's advance was so limited, given the weakness of the Nonfarm Payrolls report. It is worth noting that not only was June's figure significantly below market expectations, but the May and April figures were also revised downward. In total, the revisions reduced U.S. job growth by more than 70,000 positions over the two months. That is a substantial amount. Therefore, I believe the market's reaction to the report was insufficient and continue to expect further gains in the pair. Perhaps not today, as July 4 is U.S. Independence Day, but most likely next week.
I would also point out that the weakness of the U.S. labor market may curb the FOMC's hawkish inclination. Earlier this week, Kevin Warsh stated that the labor market remained stable, but those comments were made before the release of the Nonfarm Payrolls report. He also emphasized the need to bring inflation back to the Federal Reserve's 2% target, but again, those remarks preceded the payroll data. As a result, the Fed's stance could become considerably less hawkish in the near future, providing additional support for the bulls.
On the 4-hour chart, the pair consolidated above the 100.0% Fibonacci retracement level at 1.1411, allowing traders to anticipate further gains toward the 76.4% Fibonacci level at 1.1514. A renewed consolidation below 1.1411 would increase the likelihood of a decline toward the 127.2% Fibonacci level at 1.1291. No developing divergences are currently observed on any of the indicators.
Commitments of Traders (COT) Report
During the latest reporting week, institutional traders opened 19,327 long positions and 23,522 short positions. Over the seven weeks spanning February and March, the bulls' overwhelming advantage disappeared due to the conflict involving Iran. Over the past thirteen weeks, however, the situation has stabilized as hostilities in the Middle East have eased, allowing the bulls to regain control. Speculative traders currently hold 247,000 long positions and 217,000 short positions.
Overall, from a long-term perspective, major market participants continue to favor the euro. Naturally, global events—which have been abundant in recent years—continue to influence investor sentiment. In particular, the market remains focused on developments in the Middle East, where hostilities have paused and serious negotiations have begun that could eventually lead to a lasting peace. Even so, the market continues to largely ignore the improvement in geopolitical conditions, along with many other factors that support the euro.
Economic Calendar for the United States and the Eurozone
Eurozone
The economic calendar for July 3 contains only one event, which I do not consider particularly significant. As a result, the impact of today's economic news on market sentiment is likely to be limited, especially with many markets closed in observance of U.S. Independence Day.
EUR/USD Forecast and Trading Tips
Long positions became valid after the pair consolidated above 1.1409 on the hourly chart, with a target at 1.1514. Those positions can still be held today. New short positions may be considered if the pair consolidates below 1.1409 on the hourly chart, with a downward target at 1.1290.
The Fibonacci retracement grids are based on the 1.1409–1.1850 range on the hourly chart and the 1.1411–1.1850 range on the 4-hour chart.
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