05.08.202604:46 Forex Analysis & Reviews: EUR/USD Overview. August 5. The Market No Longer Believes in the Fed

The EUR/USD currency pair traded very calmly on Tuesday, with the first half of the day spent almost entirely in a tight range. Thus, the new not-boring week began very boringly. So far this week, there has been only one interesting event—the ISM Manufacturing Index in the U.S. This index is published in a single estimate (unlike S&P indices), which gives it particular value. As mentioned, the index exceeded forecasts, triggering a slight strengthening of the dollar. However, the manufacturing index is rather dull. The market processed this index and forgot about it. There are now more significant topics for traders to consider.

At the end of the week, labor market and unemployment reports will be published in the U.S. These are, of course, the most important indicators of the economy's current state after inflation. We have already learned that the U.S. economy slowed to 1.5% quarter-on-quarter in the second quarter, and while inflation has dropped to 3.5%, it is far from certain that it will continue to slow. Thus, it is the labor market reports that will determine the dollar's future and traders' expectations regarding Federal Reserve monetary policy.

Let's remember that just a month and a half ago, the market was virtually certain that the Fed would raise the key rate once or even several times by the end of the year. However, as of the beginning of August, serious doubts about this have arisen. We have repeatedly warned that the dollar is rising without justification, while the market is ignoring all factors in favor of the euro. For example, after the June meeting, the market rushed to buy the dollar as if Kevin Warsh had promised to raise rates several times. Yet in July, traders began to doubt the central bank's "hawkish" stance. After all, inflation is slowing, the labor market has contracted for three consecutive months, and most importantly, Warsh was appointed as Jerome Powell's successor precisely because of his willingness to lower rates, rather than raise them. If he were not prepared for "dovish" actions, Trump, who fought against the Fed and Powell during his first presidential term, would never have nominated him for this position.

Thus, the market is starting to take off its rose-colored glasses and seriously doubt that the Fed will tighten monetary policy even once by the end of the year. Meanwhile, the ECB has already raised rates once and could very well raise them again at the September meeting. If the labor market and unemployment reports show weak figures on Friday, the chances of a Fed rate hike will diminish even further. In this case, Warsh may announce that the labor market needs support again, which does not imply raising the key rate. Perhaps the labor market will show decent figures, but that does not mean the Fed is eager to raise rates. Warsh and his team have already had two opportunities to tighten, but the American central bank is somehow hesitating with this decision. If they wanted to raise rates, they would have done it long ago, especially since inflation is nearly double the target level...

The average volatility of the EUR/USD currency pair over the last 5 trading days as of August 5 is 76 pips, which is considered "average." We expect the pair to move between 1.1442 and 1.1594 on Wednesday. The upper linear regression channel is directed downward, indicating the continuation of the downward trend. The CCI indicator has entered the overbought zone, signaling a possible downward correction.

Closest support levels:

S1 – 1.1505

S2 – 1.1475

S3 – 1.1444

Closest resistance levels:

R1 – 1.1536

R2 – 1.1566

R3 – 1.1597

Trading Recommendations:

The EUR/USD pair has begun a new upward trend on the 4-hour timeframe, which could signal the start of a new cycle within the global upward trend on higher timeframes. The global fundamental backdrop for the dollar remains negative, but in 2026, first geopolitics and then the Fed's hawkish stance provided strong support for the American currency. However, every fairy tale comes to an end sooner or later. With the price positioned below the moving average, shorts can be considered, targeting 1.1444 and 1.1414. Above the moving average line, relevant long positions can be taken with targets of 1.1566 and 1.1597.

Explanations for the Illustrations:

• Linear regression channels help determine the current trend. If both are directed in the same way, it indicates that the trend is currently strong;
• The moving average line (settings 20,0, smoothed) determines the short-term trend and the direction in which trading should currently be conducted;
• Murray levels are target levels for movements and corrections;
• Volatility levels (red lines) indicate the probable price channel in which the pair will spend the next day based on current volatility readings;
• The CCI indicator entering the oversold territory (below -250) or the overbought territory (above +250) indicates that a trend reversal in the opposite direction is approaching.