On Tuesday, the EUR/USD pair rebounded from the 1.1000 level and continued declining towards the Fibonacci level of 76.4% (1.0917). However, closer to the end of the day, a reversal in favor of the European currency occurred, and the growth toward the Fibonacci level of 100.0% (1.1035) occurred. A rebound in quotes from this level will again favor the dollar and lead to a new decline toward the 1.0950 level. Fixing the pair's rate above the 1.1035 level will increase the chances of continued growth toward the next corrective level of 1.1105.
Yesterday, the most interesting and important report was the EU inflation report for April. There were several possible scenarios for its value: a sharp decline, a slight increase, or no change. In the first scenario, traders would have had an excellent opportunity to sell the euro further, as it would mean that the ECB would raise the rate by a maximum of 0.25% on Thursday. The second scenario would have allowed traders to buy the euro, as it would have meant an increased probability of tightening monetary policy by 0.50% on Thursday. The third scenario was neutral and did not provide an answer to the question of what to expect from the ECB on Thursday. The third scenario turned out to be the winning one. Inflation in the eurozone was 7.0% y/y in April, just 0.1% higher than expected. Core inflation did not support the main inflation rate and dropped by 0.1% to 5.6% y/y. These two indicators only needed clarification on the overall picture. It is now difficult even to imagine what decision the ECB will make, as core inflation has finally begun to decline, allowing the regulator to slightly ease pressure on the economy. At the same time, it only dropped once by 0.1%, while the main inflation rate increased, allowing for a 0.50% rate hike. The probability is 50/50.
On the 4-hour chart, the pair has consolidated above the sideways corridor, allowing for continued growth toward the corrective level of 61.8% (1.1273). The "bearish" divergence in the MACD indicator favored the US currency and allowed a move to the Fibonacci level of 50.0% (1.0941). However, a rebound from it has already favored the European currency and resumed growth towards the corrective level of 61.8%. No new emerging divergences are observed in any of the indicators.
Commitments of Traders (COT) report:
During the last reporting week, speculators closed 1,147 long contracts and 3,892 short contracts. The sentiment of major traders remains "bullish" and continues to strengthen overall. The total number of long contracts concentrated in the hands of speculators now amounts to 243 thousand, and the total number of short contracts – only 74 thousand. The European currency has been growing for over half a year, but the informational background is starting to change, which may lead to a decline. The ECB may already reduce the pace of rate hikes to 0.25% this week, which is unlikely to please euro buyers. The difference between the number of long and short contracts is threefold, which speaks of the proximity of the moment when bears become active. For now, a strong "bullish" sentiment remains, but I think the situation will begin to change soon. The euro has maintained high levels in recent weeks but has not grown further.
News calendar for the US and the European Union:
EU – Unemployment rate (09:00 UTC).
US – ADP Nonfarm Employment Change (12:15 UTC).
US – ISM Non-Manufacturing PMI (14:00 UTC).
US – FOMC Interest Rate Decision (18-00 UTC).
US – FOMC Statement (18:00 UTC).
US – FOMC Press Conference (18:30 UTC).
The May 3 economic events calendar contains several important entries. The impact of the informational background on traders' sentiment for the remainder of the day may be strong.
EUR/USD forecast and advice for traders:
New pair sales can be opened when rebounding from the 1.1035 level on the hourly chart with targets at 1.1000 and 1.0950. Purchases are possible when closing above the 1.1035 level on the hourly chart with a target of 1.1105.