Hi, dear traders! EUR/USD resumed its decline after a short pause on Friday. The currency pair closed the week at the level below 1.0926. However, it didn't extend its slide. Today, on Monday, EUR/USD reversed upwards and climbed above 1.0962. The price could continue its growth for a while towards 1.1050. From my viewpoint, the outlook for the common currency is rather vague. Traders have survived the shock of February 24. Nevertheless, the euro is still licking its wounds. Negative geopolitical news might bring the bears back to the market. The event of crucial importance is the policy meeting of the Federal Reserve that will be held later this week. Last week, the ECB also conducted its meeting that was of no importance to EUR/USD. Following the policy statement, the pair spiked a few dozens of pips and plummeted lower than it was trading before the meeting. The euro weakened in response to the policy update and a speech by ECB President Christine Lagarde.
The European regulator again reiterated its dovish stance on monetary policy. So, traders found no excuse to go long on EUR. This week, traders are likely to find arguments for buying USD. The thing is that market participants are betting on the Federal Reserve increasing the funds rate either by 25 or 50 basis points. All we can do is to wait for Thursday and get to know the actual size of the rate hike. I believe whatever rate hike is announced, any monetary tightening is bullish for the US dollar. Notably, Fed's policy decisions are not the same as the geopolitical environment. The US central bank conducts 8 meetings in a year, but the geopolitical background remains on a daily basis. Nowadays, the geopolitics is the main market catalyst because we are dealing with the full-blown military conflict in East Europe. A lot of countries are indirectly involved into this conflict as they have slapped crazy sanction on Russia. In turn, the Kremlin has also retaliated with counter-measures. The grave side effect of this standoff is soaring oil and gas prices because Europe imports the lion's share of gas from Russia.
On the 4-hour chart, EUR/USD reversed upwards after the CCI indicator had formed bearish divergence. For the time being, the pair is going its decline towards 1.0865, the 200.0% Fibonacci correction. If the price bounces off this level, the euro will gain ground. However, the more feasible scenario is that EUR/USD will extend its decline towards 1.0638.
Commitments of Traders report (COT):
Referring to the COT report of the last week, speculators opened 14,899 long contracts and 20,676 short contracts. It means that the bullish sentiment is waning among traders. The overall number of long contracts is measured at 248,000 and the number of short contracts is 186,000. All in all, the dominating sentiment in the non-commercial category of traders remains strongly bullish. It would give the euro the opportunity to gain ground unless the information background that supports only the US dollar. The ongoing situation is a real puzzle. The bullish sentiment is getting stronger among large market players for a few months ahead. However, the European currency is trading lower against the US dollar. Moreover, the fall is rather painful. Obviously, the geopolitics is now setting the tone on the currency market.
Economic calendar for US and EU
The economic calendar is absolutely empty for both the US and the EU. So, the calendar is making no impact on market sentiment today. On the other hand, Russia and Ukraine are opening a new round of the talks aiming to gain some peaceful solutions. Perhaps traders will get to know some positive news today.
Outlook for EUR/USD and trading tips
I would recommend opening new short positions on EUR/USD because the price closed below 1.1050 on the 1-hour chart. The downward target is seen at 1.0865. We could keep these positions open. I would refrain from buying the pair as the odds are that EUR will drop lower. If the price rebounds off 1.0865, we could try buying EUR/USD cautiously.