On Tuesday, the EUR/USD pair rebounded from the 61.8% Fibonacci retracement level at 1.1507, reversed in favor of the euro, and began advancing toward the 76.4% Fibonacci retracement level at 1.1551. A rebound from this level today would favor the U.S. dollar and trigger another decline toward 1.1507. A consolidation above 1.1551 would allow traders to anticipate further gains toward the next 100.0% Fibonacci retracement level at 1.1620.
The wave structure on the hourly chart has turned bullish. Although the last completed downward wave broke below the previous low, the most recent upward wave also exceeded the previous high. Geopolitical developments have raised hopes that the Strait of Hormuz could reopen this week. Iran, the United States, and Oman are holding negotiations regarding control over transit through the strait. As a result, geopolitics is currently weighing against the dollar, while the market’s hawkish expectations regarding FOMC monetary policy continue to ease.
Tuesday’s news background gave the bulls an opportunity to launch a moderate advance, and they successfully took advantage of it. The JOLTS report on U.S. job openings came in below market expectations, putting modest pressure on the U.S. dollar. Today, Donald Trump stated that an agreement to reopen the Strait of Hormuz could be reached between Oman, Iran, and the United States as early as today, which is also putting pressure on the dollar’s safe-haven appeal. The dollar is not experiencing a sharp decline despite expectations that oil shipments will resume and energy prices will fall. Market participants remain cautious about any announcements regarding a potential agreement, especially those made personally by Donald Trump. Traders have already seen numerous agreements that were supposedly “just days away” from being signed. As a result, the dollar is currently not a priority for market participants. Bulls continue to press higher and are looking for additional support from upcoming U.S. labor market and unemployment data.
On the 4-hour chart, the pair has consolidated above the descending trend channel, suggesting not merely a bullish correction but the beginning of a full-fledged bullish trend. Consolidation above the 76.4% Fibonacci retracement level at 1.1514 supports the case for continued growth toward the 61.8% Fibonacci retracement level at 1.1578. No emerging divergences are currently observed on any indicator.
Commitments of Traders (COT) Report:
During the latest reporting week, institutional traders closed 15,490 long positions and opened 15,691 short positions. Over the seven weeks of February and March, the bulls’ overwhelming advantage disappeared due to the war involving Iran, while over the past eighteen weeks the positioning has become more balanced amid the perceived ceasefire and market expectations that the conflict would come to an end. Speculative traders now hold approximately 205,000 long positions and 277,000 short positions. The bears are once again regaining the upper hand.
Overall, large market participants continue to maintain a favorable long-term outlook for the euro. Naturally, global events of various kinds—which have been in no short supply in recent years—continue to influence investor sentiment. In particular, the market remains focused on developments in the Middle East, where the conflict repeatedly appears to end only to resume again. The market initially ignored the ceasefire and later paid little attention to the renewed hostilities. As a result, geopolitics is no longer the sole factor determining the dollar’s direction.
Economic Calendar for the United States and the Eurozone:
United States
- ADP Employment Change (12:15 UTC)
- ISM Services PMI (14:00 UTC)
The economic calendar for August 5 includes two releases that can be considered important. The ADP report is the first key U.S. labor market release ahead of the official employment data, while the ISM Services PMI is significant in its own right. Therefore, macroeconomic data may influence market sentiment during the second half of Wednesday’s trading session.
EUR/USD Forecast and Trading Tips:
Long positions could be opened following a rebound from 1.1507 on the hourly chart, with a target at 1.1551. That target has now been almost reached. A consolidation above 1.1551 would justify maintaining long positions with a target at 1.1620.
Short positions may be considered if the pair rebounds from 1.1551 on the hourly chart, with downward targets at 1.1507 and 1.1472.
Fibonacci retracement grids are drawn from 1.1620 to 1.1325 on the hourly chart and from 1.1411 to 1.1850 on the 4-hour chart.
