On Tuesday, the EUR/USD pair made a new reversal in favor of the US dollar and consolidated below the 200.0% corrective level at 1.1165. Thus, the decline may continue towards the key support zone of 1.1070–1.1081. A rebound from this zone, as well as from the trendline, will keep traders' sentiment "bullish" and may lead to a potential resumption of growth towards the 1.1240 level. At the moment, I do not see any serious intentions from the bears or any supporting news flow.
The wave situation has become slightly more complicated, but overall, it remains clear. The last completed downward wave did not break the low of the previous wave, and the new upward wave broke the peak from August 14. Therefore, the "bullish" trend is currently intact. For the "bullish" trend to reverse, the bears need to break the low of the last downward wave near the 1.0950 level.
The news flow on Tuesday was very weak. Perhaps the most interesting report of the day—Germany's GDP for the second quarter—showed exactly the figure that was expected. The German economy contracted by 0.1% quarter-on-quarter. Additionally, two consumer confidence indices were published—one in Germany and one in the US. The figure in Germany came in below forecasts, while the figure in the US exceeded them. However, since these two reports have a very low impact on traders, the reaction was extremely muted. It seems the dollar is stuck in a stalemate situation. The market is refraining from buying it ahead of the Fed's rate cut and is also concerned that the upcoming labor market report, due next week, may once again fall short of expectations, leading the Fed to consider a 50 basis point rate cut in September. If that happens, the dollar's outlook will not be favorable.
On the 4-hour chart, the pair consolidated above the 100.0% Fibonacci level at 1.1139. This suggests the possibility of continued growth. The CCI indicator has formed a "bearish" divergence, and the RSI indicator has entered the overbought zone. Therefore, there are still many factors pointing to a potential decline in the pair this week. However, can the dollar currently expect strong growth? In my opinion, no. Even if a downward trend begins, it will take quite some time to get the necessary confirmations. For now, I expect only a small downward correction.
Commitments of Traders (COT) Report:
During the last reporting week, speculators opened 12,138 long positions and closed 16,896 short positions. The sentiment of the "Non-commercial" group shifted to "bearish" several months ago, but now the bulls are once again dominating. The total number of long positions held by speculators is now 194,000, while the number of short positions is 138,000.
I still believe that the situation will continue to shift in favor of the bears. I do not see long-term reasons to buy the euro, as the ECB has started easing monetary policy. In the U.S., rates are expected to remain high at least through September 18. I would also like to note that the market has already fully priced in the rate cut in September with a 100% probability. The potential for the euro to decline appears significant. However, we should not forget about the technical analysis, which at the moment does not confidently suggest a strong fall in the euro.
Economic Calendar for the US and Eurozone:
On August 28, the economic events calendar contains no entries. Therefore, the impact of the news flow on traders' sentiment for the remainder of the day will be absent.
Forecast for EUR/USD and Trading Recommendations:
Selling the pair can be considered if it closes below the 1.1165 level on the hourly chart, targeting 1.1070–1.1081. Buying will be possible if the pair closes above the 1.1165 level on the hourly chart, targeting 1.1240, but at this time I would be cautious about long positions. The bulls have been dominant for an extended period.
The Fibonacci grids are built from 1.0917–1.0668 on the hourly chart and from 1.1139–1.0603 on the 4-hour chart.