On Wednesday, the EUR/USD pair reversed in favor of the European currency and held above the corrective level of 61.8% (1.0883). Thus, the upward trend may continue towards the corrective level of 50.0% (1.0932) on Thursday. A rebound from this level will favor the US dollar and may lead to a resumption of the decline towards the levels of 1.0883 and 1.0823.
The wave situation remains unchanged. The last upward wave was quite weak and could not break the peak from December 28th. Thus, the first sign of the end of the "bullish" trend was obtained. The new downward wave confidently broke the lows from January 3rd and 5th, the second sign of the end of the "bullish" trend. Consequently, we now have a new "bearish" trend. The decline of the euro is most likely in the coming weeks. The euro must rise above the peak from January 11th to cancel the "bearish" trend.
The news background on Wednesday was relatively weak. In the European Union, the inflation report for December was released in the final assessment, similar to the preliminary assessment. This report did not attract traders' attention. Inflation in the European Union has accelerated slightly, but it does not mean that the ECB will now take a more "hawkish" position. The ECB's Board of Directors has taken a wait-and-see position and wants to monitor macroeconomic indicators for at least a few more months. Only in late spring will a decision be made on interest rate cuts.
In the US, retail sales and industrial production reports showed slightly higher values than expected, but the dollar did not receive support yesterday. ECB President Christine Lagarde will speak today, and if she acknowledges the latest inflation report, it could support the euro.
On the 4-hour chart, the pair reversed in favor of the US currency and fell to the corrective level of 50.0% (1.0862). A rebound from this level will favor the euro and may lead to some growth towards the Fibonacci level of 61.8% (1.0959). Holding quotes below the 50.0% level increases the likelihood of continuing the decline toward the next Fibonacci level at 1.0765. No imminent divergences are observed among any of the indicators. Holding below the ascending trend corridor signifies a trend change to "bearish."
Commitments of Traders (COT) report:
During the last reporting week, speculators closed 3,439 long contracts and 2,840 short contracts. The sentiment of major traders remains "bullish" and is generally weakening. The total number of long contracts held by speculators now stands at 208,000, while short contracts amount to only 89,000. Despite the significant difference, the situation will shift toward the bears. The bulls have dominated the market for too long, and now they need a strong news background to sustain the "bullish" trend. I do not see such a background at the moment. Professional traders may resume closing their long positions soon. The current numbers allow for a resumption of the euro's decline in the coming months.
News calendar for the US and the European Union:
US - Building Permits (13:30 UTC).
US - Housing Starts (13:30 UTC).
US - Initial Jobless Claims (13:30 UTC).
European Union - Christine Lagarde's Speech (15:15 UTC).
On January 18th, the economic calendar includes several entries, with Christine Lagarde's speech being noteworthy. The impact of the news on traders' sentiment today may be of moderate strength.
EUR/USD forecast and trading recommendations:
Sales of the pair were possible on a rebound from the level of 1.0982 on the hourly chart, with targets at 1.0932 and 1.0883. Both targets have been achieved. New sales can be considered on a rebound from the level of 1.0932. Purchases could have been contemplated upon consolidation above the level of 1.0883 on the hourly chart, with targets at 1.0932 and 1.0982.