Hi, dear traders! On Monday, EUR/USD failed to establish a foothold below the 127.2% Fibonacci retracement level at 1.1216. Rebounding from that level, the pair resumed its upward movement towards the next target at 1.1298. The prevailing sentiment among traders remains firmly bullish as the upward trend continues. Only a decisive break below the trend line would signal a potential reversal.
Currently, the waves are not providing any new insights. Since July 11, an upward wave has been forming without any signs of a downward correction. Thus, the bullish trend remains intact, and there is no indication that it is about to end. It is important to note that if the pair performs a breakout below the previous low or fails to break above the previous peak, it could suggest a trend reversal. However, neither of these conditions is present at the moment.
Moreover, not only are those factors absent, but there is also a lack of significant news or data releases. Bulls are not particularly willing to close their longs positions, and there is a lack of bears in the market. These factors continue to fuel the euro's upward movement. There are no specific reasons for such a strong rise in the EU currency. While it is easy to speculate on the reasons behind the euro's strength, it is important to assess whether those reasons truly reflect the reality of the market.
Some economists believe that the recent strengthening of the euro and the weakening of the dollar are linked to the possibility of the Federal Reserve announcing a dovish policy shift by the end of the year. Meanwhile, the European Central Bank will maintain its interest rates at their peak levels, which have not yet been reached. However, there have been no concrete indications of such developments in recent weeks. Therefore, such claims should be taken as mere assumptions, as the true reasons behind the euro's rise may be different altogether.
On the H4 chart, the pair has established a foothold above the 127.2% Fibonacci retracement level at 1.1221, paving the way for further upside towards the next retracement level at 161.8% near 1.1380. As mentioned earlier, despite traders overlooking several reports and factors last week, the euro continues to climb, with no chart signals suggesting a reversal. The potential bearish divergence on the CCI indicator has already been invalidated.
Commitment of Traders (COT) report:
During the last reporting week, traders opened 3,079 long positions and 5,754 short positions. While sentiment among major traders remains bullish, it is gradually weakening. The total number of long positions held by speculators stands at 224,000, while short contracts amount to only 84,000. While the bullish sentiment persists, there are indications that the situation may start shifting in the opposite direction soon. The high number of open Long positions suggests that buyers may begin closing them positions in the near future, signaling a potential reversal of the current bullish bias. Given these factors, a downward correction in the euro is possible in the coming weeks, particularly considering the significant rally witnessed last week. However, there are currently no sell signals on the chart.
EU and US economic calendar:
US - Retail Sales (12:30 UTC).
US - Industrial Production (13:15 UTC).
The economic calendar for July 18 includes two relatively minor events. They may have a limited effect on traders' sentiment today. There are currently no corrections occurring at the moment.
Outlook for EUR/USD:
Selling opportunities may arise if the pair manages to establish a sustained break below the hourly trend line, with targets at 1.1172 and 1.1092. The current trend remains bullish, so I do not recommend expecting a significant decline in the pair right now. Previously, traders were recommended opening long positions in EUR/USD with a target at 1.1298 until it closes below 1.1216. These positions can still be kept open.