On Tuesday, the EUR/USD pair reversed in favor of the European currency and resumed its upward movement. The pair's price holding above the corrective level of 50.0% (1.0784) increases the probability of further growth toward the next Fibonacci level at 61.8% (1.0843). A close below the level of 1.0784 would favor the U.S. currency and potentially resume the downward movement toward the corrective level of 38.2% (1.0726).
Yesterday was a crucial day for the dollar, as 50% of today's FOMC rate decision depended on the inflation report for May. This report simultaneously pleased and disappointed. It pleased economists and the FOMC because inflation slowed more than expected, reaching 4% in May. The core inflation also decreased, albeit at a slower pace, reaching a level of 5.3%. Thus, the debate on whether the Fed will raise interest rates today can be concluded. In recent weeks, most FOMC members have held the view of raising rates once every two meetings. However, the rate can increase one more time if the Consumer Price Index requires additional stimulus for reduction. Therefore, there are no reasons to tighten monetary policy based on the outcome of the June meeting.
This is bad news for the U.S. dollar as its strength largely depends on the Federal Reserve's stance. Yesterday, the Consumer Price Index for May in Germany was released, indicating a 6.1% increase, 0.9% lower than in April. However, overall inflation in the European Union, specifically in Germany, is one and a half times higher than in the United States, so it is impossible to conclude a probable pause in monetary policy tightening based on the ECB's perspective. However, it is also not expected that there will be a significant increase in interest rates in the European Union.
On the 4-hour chart, the pair reversed in favor of the euro and may continue its upward movement toward the Fibonacci level of 50.0% (1.0941). Today, a "bearish" divergence has formed in the CCI indicator, which suggests a potential decline toward the level of 1.0610. However, the divergence is weak, while the information background is strong. The level of 1.0941 is quite far, so potential sell signals should be monitored on the hourly chart.
Commitments of Traders (COT) report:
During the last reporting week, speculators closed 5,757 long contracts and opened 1,547 short contracts. The sentiment among large traders remains bullish and is strengthening once again. The total number of long contracts held by speculators now amounts to 236,000, while short contracts total only 77,000. Currently, a strong bullish sentiment persists, but the situation will continue to change soon. The European currency has been declining over the past month. The high value of open long contracts suggests that buyers may close their positions soon (or have already started, as indicated by the latest COT reports). There is currently an excessive bias toward bulls. The current figures allow for a further decline of the euro soon. However, much will depend on the Federal Reserve this week.
News Calendar for the United States and the European Union:
European Union - Industrial Production (09:00 UTC).
USA - Producer Price Index (PPI) (12:30 UTC).
USA - Federal Reserve Interest Rate Decision (18:00 UTC).
USA - FOMC Economic Projections (18:00 UTC).
USA - FOMC Statement (18:00 UTC).
USA - FOMC Press Conference (18:30 UTC).
On June 14th, the economic calendar includes several events, with the Federal Reserve meeting being the highlight. The impact of the news on trader sentiment today can be significant.
Forecast for EUR/USD and trader advice:
Sell positions can be opened if the pair consolidates below the level of 1.0784 on the hourly chart, with a target of 1.0726. I advised buying the pair if it closes above the level of 1.0784 on the hourly chart, with a target of 1.0843. These trades can be held open until a close below 1.0784.