Last Friday, the EUR/USD pair experienced a rise toward the corrective level of 23.6% (1.0923), followed by a rebound and a reversal favoring the American currency. The preceding upward wave was relatively brief but strong. The peak of the previous upward wave remained unbroken, and the level of 1.0923 deterred further buying by the bulls. Hence, multiple factors pointed to a potential resumption of the decline in the European currency.
By Monday, the pair had declined to the Fibonacci level of 38.2% (1.0868), from which a rebound is possible. However, a significant rise is yet to be anticipated, given the downward trend. I foresee a decline in the pair towards the corrective level of 50.0% (1.0824). Currently, the bearish traders hold the initiative.
On Friday, the inflation report in the European Union exhibited ambiguity, and the rise of the European currency occurred several hours after the release of this crucial report of the day. No connection is apparent between these two events. Traders' expectations regarding inflation were met by 90%, making a strong reaction unlikely.
On Monday, the European Union released the business activity report in the manufacturing sector, which turned out to be lower than the previous month and the preliminary estimate from two weeks ago. The situation is even worse for business activity in Germany, where the indicator has dropped to 40.6. Thus, the decline of the European currency today is justified.
On the 4-hour chart, the pair reversed in favor of the euro following the formation of a "bullish" divergence in both the CCI and RSI indicators. Despite the upward pullback, the bears remain intent on continuing the pair's decline. Consequently, a close below the 38.2% level is expected, with further descent toward the Fibonacci level of 50.0% (1.0811). No new emerging divergences are observed in any of the indicators today.
Commitments of Traders (COT) report:
During the last reporting week, speculators closed 5,422 long contracts and 5,801 Short contracts. The sentiment of major traders remains "bullish" but is gradually weakening. The total number of long contracts held by speculators now amounts to 224,000, while short contracts total only 79,000. The strong bullish sentiment persists, but the situation will continue to change soon. Over the past two months, the European currency has experienced slightly more declines than rises. The high value of open long contracts suggests buyers may initiate their closure soon (or may have already begun, as recent COT reports indicate) due to an imbalance favoring the bulls. The current figures indicate a potential further decline of the euro in the near future.
News calendar for the US and the European Union:
Eurozone - Manufacturing Purchasing Managers' Index for Germany (07:55 UTC).
Eurozone - Manufacturing Purchasing Managers' Index (07:55 UTC).
USA - Manufacturing Purchasing Managers' Index (13:45 UTC).
USA - ISM Manufacturing PMI (14:00 UTC).
On July 3rd, the economic events calendar includes several entries, half of which have already been disclosed. The most important ISM index will be released in the second half of the day. The impact of the information background on traders' sentiment in the remaining part of the day may be of moderate strength.
Forecast for EUR/USD and advice for traders:
New sell positions were possible on the hourly chart after a rebound from the 1.0923 level, with targets at 1.0868 and 1.0824. These trades can be kept open until buy signals (reversals, divergences) are formed. I do not recommend buying the pair in the "bearish" trend. First, we need at least one "bullish" wave to form, possibly breaking the downward trend.
