On Wednesday, EUR/USD reversed in favor of the euro and advanced toward the 50.0% Fibonacci retracement level at 1.1472. A rebound from this level would favor the U.S. dollar and could trigger a decline toward 1.1438 and 1.1395. Conversely, a consolidation above 1.1472 would support further gains in the euro, with the next upside target at the 61.8% Fibonacci retracement level of 1.1507.
The wave structure on the hourly chart remains bearish despite the bulls’ prolonged but weak advance. The latest completed downward wave broke below the previous low, while the current upward wave has yet to exceed the previous high. The geopolitical backdrop remains unfavorable, as tensions between the United States and Iran persist, with both sides continuing their actions around the Strait of Hormuz and no negotiations currently underway. This continues to provide support for the U.S. dollar. A break above 1.1473 would be required to confirm that the bearish trend has ended, but over the past month the bulls have shown little strength.
Wednesday’s news flow not only failed to support the bears but also disappointed them, as they had clearly been hoping to launch another downward move. The FOMC decided to leave monetary policy unchanged, in line with market expectations. However, Federal Reserve President Kevin Warsh stated during the press conference that the central bank intends to continue fighting inflation, while explaining that additional policy tightening was unnecessary in July because June inflation had slowed to 3.5%.
The market appeared unconvinced by the Fed’s commitment to “continue fighting inflation,” given that inflation has remained above target in the United States for five years. Exactly what measures the Federal Reserve intends to take—and when—remains unclear. Likewise, it is uncertain which specific actions the Fed has already taken to reduce inflation. In my view, Kevin Warsh attempted to convince markets that further monetary tightening remains possible and that inflation would continue to decline not only because of falling oil prices, but traders did not find this message credible. At this stage, the FOMC has done little to slow the pace of consumer price growth.
On the 4-hour chart, the pair continues to trade sideways. A bullish divergence has formed on the CCI indicator, helping the pair move higher. Yesterday, the euro also consolidated above the downward trend channel, although the broader sideways trading range remains intact. The 1.1411 level is currently not providing reliable trading signals. No new developing divergences are visible on any of the major technical indicators.
Commitments of Traders (COT) Report
During the latest reporting week, institutional traders closed 9,842 long positions and opened 18,891 short positions. Over the seven weeks spanning February and March, the bulls’ overwhelming advantage disappeared because of the conflict involving Iran. During the past seventeen weeks, market positioning has become more balanced amid a fragile ceasefire and investors’ hopes that the conflict would come to an end. Speculators currently hold approximately 220,000 long positions and 261,000 short positions, indicating that the bears have once again regained the upper hand.
From a broader long-term perspective, however, major market participants continue to maintain a favorable view of the euro. Naturally, the numerous geopolitical developments seen in recent years continue to influence investor sentiment. In particular, markets remain focused on the Middle East, where the conflict appears to subside only to flare up again. Initially, markets largely ignored the ceasefire, and later they also paid little attention to the renewed escalation. As a result, geopolitical factors are no longer the sole driver of the U.S. dollar.
Economic Calendar
Germany
- Second-Quarter GDP Growth Rate (08:00 UTC)
- Consumer Price Index (CPI) (12:00 UTC)
Eurozone
- Second-Quarter GDP Growth Rate (09:00 UTC)
- Unemployment Rate (09:00 UTC)
United States
- Core PCE Price Index (12:30 UTC)
- Second-Quarter GDP Growth Rate (12:30 UTC)
- Personal Income and Spending (12:30 UTC)
The economic calendar for July 30 includes seven scheduled releases, with GDP data expected to be the primary market focus. As a result, macroeconomic developments could influence market sentiment throughout Thursday’s trading session.
EUR/USD Forecast and Trading Tips
Long positions were possible after the pair closed above 1.1395, with targets at 1.1438 and 1.1472. Both targets have already been reached. Short positions may be considered if the pair rebounds from the 1.1472 level on the hourly chart, with downside targets at 1.1438 and 1.1395. Overall, market movements remain relatively subdued, and yesterday’s stronger price action appears to have been more of an exception than the norm.
Fibonacci retracement levels are drawn from 1.1620–1.1325 on the hourly chart and from 1.1411–1.1850 on the 4-hour chart.
