On Friday, EUR/USD continued to climb to the upside and settled above the Fibonacci retracement level of 261.8% at 1.0196. It also stayed above the descending trend channel. So, we can expect a further rise of the euro towards the next level of 1.0315 unless the quotes decline below 1.0196 in the short term. All key macroeconomic data had already been published by the afternoon. The EU has released the GDP report for the second quarter which unexpectedly exceeded traders' expectations. Moreover, the reading for the first quarter was revised upwards and came in at +0.5%. In Q2, the reading was 0.7%. So, the euro bulls were encouraged by this data in the morning. Yet, the optimism did not last long as the CPI report showed an increase of 8.9% year-on-year.
Both reports accurately reflect the current state of the EU economy. The ECB has raised the interest rate for the first time this month. Therefore, it could not have affected the economic growth in the previous period. On the other hand, the same factor explains why inflation in Europe is still high. The worst is yet to come. So, the European regulator will have to follow the policy of the Fed sooner or later and hike the rate at a higher pace. This will result in the European economy shrinking. Hopefully, these measures will slow down inflation as well. In the meantime, traders can not make a clear conclusion based on this contrasting data. The fact that inflation is accelerating is bad. At the same time, higher GDP is good. Technical analysis suggests that the euro may strengthen although no actual rise is observed now and hasn't been observed over the past two weeks. The current situation is extremely uncertain and confusing. Let's have a look at the 4-hour chart.
On the 4-hour chart, a new reversal of the pair allowed the euro to rise and settle above the fibo level of 127.2% at 1.0173. So, the price may continue to climb towards the upper line of the descending trend channel. Previously, the pair failed to move upwards after consolidation above 1.0173. Meanwhile, the channel is slowly declining in a horizontal movement. In this case, the pair may neither rise nor fall. The current technical analysis does not show the further direction of the price.
Commitments of Traders (COT) report:
Last week, traders closed 1,365 long contracts and opened 16,136 short contracts. This indicates that large market players have become more bearish on the pair. The total number of opened long positions stands at 238,000, while the number of short positions is 195,000. Although the difference is minor, long positions still prevail. In recent weeks, the chance that the euro may recover has been increasing. However, the latest COT report showed that a new round of sell-off may start at any time as the market sentiment has changed to bearish. Therefore, the European currency is unlikely to develop strong growth in the near future.
Economic calendar for US and EU:
EU – GDP for Q2 (09-00 UTC)
EU – CPI (09-00 UTC).
US – Personal Income and Spending (12-30 UTC).
US – Michigan Consumer Sentiment (14-00 UTC).
On July 29, two key reports are expected both in the Eu and the US. The data from the EU has already been published and it is far more important than the American reports. Today's macroeconomic background may moderately influence the market sentiment.
EUR/USD forecast and trading tips:
I recommend selling the pair on a rebound from the upper boundary of the channel on the H4 time frame with the target located at 1.0173. Buying will be relevant when the price settles firmly above the channel on H1 with 1.0315 as a target. At the moment, this trade can be kept open.
