The EUR/USD pair was rising through the entire session on Tuesday. By the end of the day, it settled above the Fibonacci retracement level of 323.6% at 0.9963 but failed to hold there. On Wednesday, the pair reversed in favor of the US dollar and closed below the level of 0.9963. Bull traders still have an ascending trendline from where the price may rebound. Consolidation below this line will mark the end of the euro's winning streak. If so, the price will continue to decline towards 0.9782. First of all, I would like to note that the rise of the European currency in the past week was not strong enough to give up on selling the pair. Although recently, the euro has been rising for five days in a row, this advance is unlikely to offset this deep decline that has been going on for months. Therefore, I believe that the pair may resume the downtrend. The euro will need strong support from the information background to continue its growth. The question is whether it will get it at all.
Yesterday, Christine Lagarde said that inflation might continue to rise and had not reached its peak yet. On the one hand, this is a bullish factor for the euro as the ECB will keep raising the rate. Yet, traders somehow downplayed the two previous rate hikes by the ECB and seven rate hikes by the Bank of England. Why wouldn't they do so this time? Apparently, those bullish factors and the hawkish stance of the regulators have little effect on the market sentiment. It is even hard to explain why the euro was appreciating for the past five days. Most likely, this could be explained by the technical factor and a mere corrective phase. If so, the pair may resume its decline as soon as this week. By the way, the pair is still trading within the descending trend channel on the 4-hour chart. This clearly shows that traders stay bearish on the instrument. On Wednesday morning, the EU released the Services PMI data that showed a contraction to 48.8.
EUR/USD moved to the upside on the 4-hour chart and headed towards the upper line of the descending trend channel. The existing channel reflects the bearish sentiment of the market which makes all the forecasts about the euro's strong uptrend highly unreliable. A firm hold above the channel will validate the further rise of the pair.
Commitments of Traders (COT) report:
Last week, traders opened 2,172 long contracts and 1,824 short contracts which means that the sentiment of large market players has not changed over the week. The overall amount of long positions is 208,000 while the amount of short positions is 174,000. Therefore, we can say that the sentiment of large market participants has become more bullish although the euro is still struggling to develop a proper uptrend. In recent weeks, there were some chances for the euro to recover. However, traders are hesitant to buy it and prefer the US dollar instead. Therefore, I would advise you to focus on the main descending channels on the H1 and H4 charts. The pair has overcome the channel on minor time frames and will attempt to do the same on higher time periods. It is also recommended to monitor geopolitical news as it tends to greatly affect the market sentiment.
Economic calendar for US and EU:
EU – Services PMI (08-00 UTC).
US – ADP Nonfarm Employment Change (12-15 UTC).
US – Services PMI (13-45 UTC).
US – ISM Non-Manufacturing PMI (14-00 UTC).
On October 5, the economic calendars in both the US and EU reveal business activity in different sectors. Traders reacted with a sell-off to the data on the European Services PMI. The impact of the information background on the market sentiment can be rather strong on Wednesday.
EUR/USD forecast and trading tips:
It is better to sell the pair when the price bounces off the upper line of the channel on H4. The target should be the level of 0.9581. Another option is to sell when the price settles below the trendline on the 1-hour chart. I recommend buying the pair when the quote settles firmly above the upper boundary of the channel on H4 with the target at 1.0638.