The EUR/USD pair extended its downward movement on Friday, approaching the corrective level of 100.0% (1.1092). Today, the pair closed below this level, suggesting the potential for a further decline toward the next level at 1.1035. Traders' sentiment is "bearish" due to the descending trend channel, making a substantial rise in the euro currency above this corridor unlikely.
The waves have finally signaled a shift to a "bearish" trend. The peak observed on July 18 was not surpassed by the subsequent upward wave, while the low from July 19 was broken by the following downward wave. As a result, we are currently in a "bearish" trend, and there are no indications of its completion. The decline of the euro currency may persist throughout this week, at least until the ECB and Federal Reserve meetings.
There were no significant news releases on Friday, but today, interesting reports on business activity in Germany and the European Union were published. Usually, these reports only mildly interest traders, as their values are rare. However, today is an exception. Business activity in manufacturing declined much more than forecast, with Germany at 38.8 and the European Union at 42.7. Similarly, business activity in the services sector dropped, with Germany at 52.0 and the European Union at 51.1. Consequently, all indices showed a more substantial decrease than expected.
The euro's decline, along with these indices, is not unexpected. The decline in indices signals a continuing economic slowdown, and the stronger the slowdown, the faster the ECB will implement monetary policy tightening. At the beginning of this week, the bears have an excellent opportunity to build on their success from the previous week.
According to the Commitments of Traders (COT) report, during the last reporting week, speculators opened 40,163 long contracts and 1,493 short contracts. The sentiment among large traders remains "bullish" and has strengthened once again. The total number of long contracts held by speculators now stands at 264,000, while short contracts amount to only 85,000. Although the "bullish" sentiment persists, I believe the situation may change in the opposite direction shortly. The high value of open long contracts suggests buyers may soon start closing their positions due to the strong imbalance in favor of bulls. Considering these figures, a decline in the euro currency in the coming weeks seems likely, especially after the significant rise observed two weeks ago.
News calendar for the United States and the European Union:
European Union - Manufacturing Purchasing Managers' Index (PMI) for Germany (07:30 UTC).
European Union - Services Purchasing Managers' Index (PMI) for Germany (07:30 UTC).
European Union - Manufacturing Purchasing Managers' Index (PMI) (08:00 UTC).
European Union - Services Purchasing Managers' Index (PMI) (08:00 UTC).
USA - Manufacturing Purchasing Managers' Index (PMI) (13:45 UTC).
USA - Services Purchasing Managers' Index (PMI) (13:45 UTC).
On July 24, the economic events calendar includes six reports, four of which are already available. The impact of the news on traders' sentiment for the rest of the day may be moderate.
Forecast for EUR/USD and trader advice:
Short positions were possible after settling below the level of 1.1216 on the hourly chart, with targets at 1.1172 and 1.1092. Both targets have been reached, with the second one being surpassed. The trend is now "bearish," so it is possible to remain in short positions with targets at 1.1035 and 1.0984. Buying the pair is advised with a target at 1.1092 on a rebound from the level of 1.1035 on the hourly chart. However, buying now is preferable, and positions should be manageable.
