FX.co ★ EUR/USD

The EUR/USD pair recently experienced an 11-day losing streak, with the euro falling by approximately 280 pips. This decline began as market participants aggressively built up their positions in anticipation of widespread expectations of an interest rate hike by the Federal Reserve. Subsequently, influenced by the hawkish rhetoric reiterated daily by members of the Federal Open Market Committee (FOMC), the market continued to buy the dollar. These members repeatedly emphasized the need for monetary tightening but remained vague about the specific magnitude of future rate hikes. In fact, the current dollar rally makes it seem as though the Fed has suddenly shifted to a very hawkish stance, while the reality suggests that the likelihood of further rate hikes may be quite limited before a broader easing cycle begins. When FOMC members unanimously affirmed their readiness to tighten monetary policy, it effectively confirmed the expected rate hike without a formal announcement, meaning that the market's positive expectations for multiple consecutive rate increases lack absolute guarantees. However, the euro’s traditional support factors—including the relatively positive performance of the European Central Bank, generally strong regional macroeconomic data, and potentially bullish technical patterns—failed to prevent its decline. The key uptrend “Imbalance 19” has not only lost its effectiveness but has structurally reversed into a downtrend, forming two significant technical zones with “Imbalance 23,” providing important short-selling opportunities. Bulls have virtually no support except for potential liquidity sources near the multi-month lows reached on July 28 and June 24. A broader fundamental assessment reveals a striking paradox: despite a series of historically significant structural weaknesses that have weighed heavily on the dollar, it continues to climb to new record highs. Regardless of the Federal Reserve’s ongoing hawkish rhetoric, it is difficult to pinpoint the enduring economic factors supporting the dollar’s weeks-long rally, especially with US Treasury yields near record highs, placing a significant fiscal burden on the federal budget, and clear signs of a slowing US economy in recent quarters. Macroeconomic uncertainty persists. Furthermore, the structural impact of renewed trade and geopolitical tensions instigated by governments, coupled with the anxiety in the US stock market stemming from highly leveraged corporate investments in AI infrastructure, underscores the fragility of the US economy's foundations. Meanwhile, external geopolitical shocks—such as the Middle East conflicts that drove capital into the dollar as a safe haven in the first half of the year—have largely peaked. This suggests that the dollar's current strength is driven more by short-term market sentiment than by positive long-term structural factors.

Domestically, Friday's data offered little support. While US durable goods orders were slightly better than expected, they still point to the potential for further declines. During today's trading session, the EUR/USD pair dipped slightly to near the recently reversed 19-day imbalance level, a technical area that could serve as a launching pad for another round of losses next week. From a broader macroeconomic and structural perspective, several factors still support a long-term recovery for the EUR/USD pair, especially given that the overall fiscal and economic framework established by US policy over the past year is primarily contributing to the euro's long-term weakness. From a technical chart perspective, although price action over the past three weeks has been complex and volatile, the short-term momentum is clearly skewed to the downside. Short-term market participants are actively exploiting newly emerging bearish imbalances for tactical selling, while bullish market participants can only hope for a potential influx of liquidity from the lows of June 24 and July 28 to trigger a significant upward reversal. As long as the market continues to be drawn to the Federal Reserve's short-term hawkish stance while ignoring the broader structural deficit, the downward trajectory for this currency pair remains intact. However, given that the pair is still trading within a long-term consolidation range that has lasted for over a year, traders should maintain strict risk management.