The EUR/USD pair performed a new reversal in favor of the US currency on Wednesday, but at the moment it has fallen only to the corrective level of 127.2% (1.0705). Fixing the pair's exchange rate below this level will work in favor of continuing the euro's fall in the direction of the Fibo level of 161.8% (1.0574). However, such a closure had already taken place yesterday, but bear traders very quickly abandoned their plans. There is a situation when bull traders are afraid of new purchases of the euro currency, since the European economy now gives no reason for optimism, and bear traders do not yet have clear reasons to sell the euro again. Let me remind you that for the first three days of the week, only one report deserved the attention of traders. As usual, the calendars of economic events contain a much larger number of entries, but 10 percent of them are important. So, the report on inflation in the EU, which was released yesterday, turned out to be much worse than traders' expectations. Inflation has already risen to 8.1% y/y, and the ECB remains silent.
Christine Lagarde and other members of the bank have already spoken several times in favor of raising the interest rate this fall, but by autumn inflation in the European Union will already be 10%. No one in the ECB is in a hurry to start implementing measures that will lead to a decrease in price growth. Let me remind you that the ECB is still conducting an APP program, which will be completed only in a few months. Now in the European Union, even talking about a possible decrease in inflation is simply groundless - the ECB has not yet done anything to slow it down. Christine Lagarde, who has previously expressed a wonderful formulation about slowing inflation by reducing the influence of external factors, seems to still believe in it. But the real numbers show that inflation is not going to meet Lagarde's expectations. Today, the EU has released another index of business activity in the manufacturing sector, which declined slightly in May.
On the 4-hour chart, the pair performed a reversal in favor of the US currency after the formation of a "bearish" divergence at the MACD indicator. The reversal occurred near the upper line of the descending corridor, which still characterizes the mood of traders as "bearish". And on the hourly chart, the quotes closed under the ascending corridor. Thus, now the probability of a new fall in the euro currency has grown significantly. The decline may continue in the coming days in the direction of the corrective level of 100.0% (1.0638). Fixing above the corridor on the 4-hour chart will greatly improve the prospects of the euro.
Commitments of Traders (COT) Report:
Last reporting week, speculators opened 6,302 long contracts and closed 12,289 short contracts. This means that the bullish mood of the major players has intensified again. The total number of long contracts concentrated on their hands is now 237 thousand, and short contracts - 198 thousand. As you can see, the difference between these figures is not very big and you can't even say that the European currency has been falling nonstop in recent months. In recent months, the euro has mostly maintained a "bullish" mood in the category of "Non-commercial" traders, but this did not help the EU currency. However, now we still see how on all charts the mood of traders begins to change to "bullish". Thus, the prospects for the euro currency are improving every day. If bear traders do not start to retreat sharply from their intentions in the next week or two, the euro may seize the initiative from the dollar for a long time.
News calendar for the USA and the European Union:
EU - index of business activity in the manufacturing sector (PMI) (08:00 UTC).
EU - ECB President Lagarde will deliver a speech (11:00 UTC).
US - change in the number of people employed in the non-agricultural sector from ADP (12:15 UTC).
US - index of business activity in the manufacturing sector (PMI) from ISM (14:00 UTC).
On June 1, the calendars of economic events in the European Union and the United States contain interesting entries. European events did not have any effect on the mood of traders, and American events can only have a restrained effect on the mood of players.
EUR/USD forecast and recommendations to traders:
I recommended selling the pair if there is closure under the corridor on the hourly chart, with targets of 1.0705 and 1.0574. Now, these transactions can be held. I recommend buying the euro currency when anchoring above the corridor on a 4-hour chart with a target of 1.1041.