On Friday, the EUR/USD pair experienced a series of movements: a drop, a rise, another fall, and a rise again. 80% of these movements occurred below the corrective level of 38.2% (1.0810). On Monday, the pair's quotes returned to the 1.0810 level. A rebound from this level would favor the US currency, with a resumption of the decline toward the Fibonacci level of 23.6% (1.0744). A pair's close above 1.0810 will likely continue to rise toward the next corrective level of 50.0% (1.0864).
The waves continue to tell us that the bearish trend is still intact. On Friday, we saw two downward waves, with the latter not breaching the low of the previous one. This could signal the end of the bearish trend, but this sign is still too weak. Now, the next upward wave needs to surpass the peak of Friday's wave. If this does not happen, the pair will either move sideways or resume its decline.
Friday saw two key events of the past week: speeches by Christine Lagarde and Jerome Powell in Jackson, USA, at a symposium. As there were two speeches, let's consider them one by one. Christine Lagarde could have been more eloquent and mentioned points that the market was well aware of. She emphasized high inflation and assured rates would remain high for an extended period. However, she did not mention the September meeting, potential rate decisions, pauses, or the timing for ending the tightening of monetary policy. I interpret this rhetoric as dovish because the rate should continue to rise with the current inflation rate, as is the case with the Fed. If the ECB starts to roll back its tightening program gradually, traders might offload the euro even faster. There are many important events in the US this week, so the dollar is also not invulnerable and could face trader pressure.
On the 4-hour chart, the pair declined to the corrective level of 76.4% (1.0790). Following the formation of a bullish divergence in the RSI indicator, a rebound from this level favored the EU currency and initiated a rise towards the Fibonacci level of 61.8% (1.0882). Closing below this level would suggest a turnaround in favor of the US dollar and a resumption of the decline toward the corrective level of 100.0% (1.0637). The downward-trending corridor indicates a bearish trend.
Commitments of Traders (COT) report:
During the last reported week, speculators opened 6,925 long contracts and 8,028 short contracts. The sentiment among large traders remains bullish and overall has not weakened significantly. The total number of long contracts held by speculators now stands at 239,000, while short contracts amount to 80,000. Over time, the situation will shift in the opposite direction, but bearish traders are not attacking the bulls too aggressively. The high number of open long contracts indicates that buyers may close them soon – there's a strong bias towards the bulls. I believe the current figures suggest the potential for the euro to continue its decline in the coming weeks. The ECB is increasingly signaling the end of its monetary policy tightening procedure.
News calendar for the US and the European Union:
On August 28, the economic events calendar had no noteworthy entries. The influence of news on traders' sentiment may be absent throughout the day.
Forecast for EUR/USD and advice to traders:
I advised selling when the rate consolidates below 1.0810 with a target of 1.0744. The sell positions can remain open if it doesn't close above 1.0810. Purchases might be possible today if there's a close above the 1.0810 level or a bounce from 1.0744.