On Wednesday, the EUR/USD pair rebounded from the 1.1507 level and returned to the 76.4% Fibonacci retracement level at 1.1551. A rebound from this level on Thursday could favor the U.S. dollar and trigger a moderate decline toward the 61.8% Fibonacci retracement level at 1.1507. Consolidation above the 1.1551 level would increase the likelihood of further gains toward the next Fibonacci retracement level of 100.0% at 1.1620.
The wave structure on the hourly chart has turned bullish. The latest completed downward wave broke below the previous low, but the latest upward wave also broke above the previous peak. Geopolitical developments have raised hopes this week that the Strait of Hormuz may reopen. Iran, the United States, and Oman are holding negotiations over control of the strait. As a result, the current geopolitical backdrop is no longer supporting the U.S. dollar, while the market’s hawkish expectations regarding FOMC monetary policy are easing.
The news flow on Wednesday allowed the bulls to continue their moderate advance. Both of the most important reports on the U.S. labor market and business activity came in below traders’ expectations, providing a reason to sell the U.S. dollar. I cannot say that the selling was widespread, but traders’ interest in the U.S. currency continues to decline. Let me remind you that this process began after the market started to question the likelihood of further FOMC monetary policy tightening in September. In June, the market concluded that Kevin Warsh and his colleagues would do whatever was necessary to reduce inflation. However, by August, the conflict in the Middle East may come to an end, inflation is easing, and the U.S. labor market is showing signs of weakening. As a result, hawkish expectations are fading, and the U.S. dollar is losing market support. Of course, the most important reports for the U.S. currency are still ahead, namely tomorrow’s releases. I would not draw conclusions about the true condition of the U.S. labor market based solely on the JOLTS and ADP reports. Quite often, the ADP report posts a weak reading, while the Nonfarm Payrolls report delivers a strong one.
On the 4-hour chart, the pair has consolidated above the descending trend channel, suggesting not merely a bullish attempt but the emergence 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, professional traders closed 15,490 Long positions and opened 15,691 Short positions. Over the seven weeks spanning February and March, the bulls’ overwhelming advantage disappeared because of the war involving Iran. During the past eighteen weeks, the balance has gradually stabilized amid the perceived ceasefire and growing market hopes that the conflict would come to an end. Speculative traders currently hold a total of 205,000 Long positions and 277,000 Short positions. The bears are once again regaining the upper hand.
Overall, from a long-term perspective, large institutional traders continue to view the euro favorably. Naturally, the wide range of global developments—which have been abundant in recent years—continues 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 flare up again. The market initially ignored the ceasefire and later also overlooked the resumption of hostilities. As a result, geopolitical developments are no longer the sole factor determining the U.S. dollar’s direction.
Economic Calendar for the United States and the Eurozone:
Eurozone
United States
- Initial Jobless Claims (12:30 UTC)
The economic calendar for August 6 contains only two releases, both of which I consider to be of limited importance. Therefore, the impact of the economic data on market sentiment on Thursday is likely to be limited or absent.
EUR/USD Forecast and Trading Tips:
Long positions were possible after a rebound from the 1.1507 level on the hourly chart, with a target at 1.1551. That target has been reached. Consolidation above the 1.1551 level allows traders to maintain long positions with a target at 1.1620. Short positions may be considered if the pair rebounds from the 1.1551 level on the hourly chart, with downward targets at 1.1507 and 1.1472.
Fibonacci retracement levels are drawn from 1.1620 to 1.1325 on the hourly chart and from 1.1411 to 1.1850 on the 4-hour chart.
