This Wednesday, the EUR/USD pair rebounded from the corrective level of 38.2% (1.0868), slightly increasing before dropping below 1.0868. On Thursday, it returned to the 38.2% level. Another rebound from this level will likely favor the US dollar, leading to a fall toward the corrective level of 50.0% (1.0824). If the rate stabilizes above 1.0868, we can anticipate some growth toward the Fibonacci level of 23.6% (1.0923).
As I had previously noted, the latest upward trend merely surpassed the peak of its preceding wave by a few points. This move doesn't necessarily signify a continuation of bullish sentiment. The bearish wave was imminent, and the pair's rate stabilizing below 1.0868 suggests the market is entering a new bearish phase. Therefore, we may see a continued fall in the near term until the appearance of buy signals.
This week, Joachim Nagel, a member of the ECB Governing Council, claimed that inflation still has a considerable journey before returning to 2%. The signals from the discount rate strongly emphasize the need for ongoing hikes in the interest rate. Nagel also highlighted that the ECB's balance sheet should see a reduction in the coming years. This statement, however, didn't heavily impact the traders' sentiments, with the European currency experiencing a week-long, albeit weak, decline.
Currently, the market prefers the Federal Reserve's hawkish stance. Yet, a glance at older charts reveals that the current strengthening of the US dollar might need to be revised. Despite the daily chart displaying a bullish trend, the pair could still descend by another 200–300 points.
On the 4-hour chart, the pair took a new turn in favor of the US dollar and reinstated the downward trend. The declining trend line points to bearish market sentiment. Despite two bullish divergences, traders' sentiment hasn't swung bullish. Therefore, the decline should proceed toward the corrective level of 50.0% (1.0811). If the pair's rate consolidates above the trend line, it could favor the euro currency and lead to a modest rise toward the Fibonacci level of 23.6% (1.0962).
Commitments of Traders (COT) report:
During the last reporting week, speculators closed 5422 long contracts and 5801 short contracts. The sentiment of major traders remains "bullish," but it is slowly weakening. Speculators currently hold 224 thousand long contracts and a mere 79 thousand short contracts. The strong bullish sentiment still prevails, but the situation will continue to change soon. Over the past two months, the European currency has declined more often than not. Many open long contracts suggest that buyers might close them soon or have already begun to do so, as indicated by the most recent COT reports - the current tilt is too much towards the bulls. Given the current figures, I foresee the possibility of the euro dropping further soon.
News calendar for the USA and the European Union:
European Union - Retail Sales (09:00 UTC).
USA - Initial Unemployment Claims (12:30 UTC).
USA - Initial Unemployment Claims (12:30 UTC).
USA - Services Sector Business Activity Index (13:45 UTC).
USA - ISM Non-Manufacturing Business Activity Index (14:00 UTC).
USA - JOLTS Job Openings (14:00 UTC).
On July 6th, the economic event calendar contains several rather important entries. The impact of the news background on traders' sentiments for the remaining part of the day may be significant.
Forecast for EUR/USD and tips for traders:
Sales were possible with a rebound from the 1.0923 level on the hourly chart, with targets at 1.0868 and 1.0824. The first target has been reached, and a new sell signal might be forming now. Minor purchases of the pair on a "bearish" trend are possible. Yesterday I advised buying with a rebound from the 1.0868 level, but the 1.0923 target was not reached. I recommend considering more significant purchases only after closing above the trend line on the 4-hour chart.