The EUR/USD pair experienced a drop below the corrective level of 23.6% (1.0744) on Tuesday and today, it has returned to this level from below. A rebound from 1.0744 will once again favor the US dollar and lead to a resumption of the decline towards the next Fibonacci level of 0.0% (1.0637). If the pair's rate solidifies above the level of 1.0744, traders can expect a resumption of growth towards the corrective level of 38.2% (1.0810).
The wave pattern has remained unchanged since yesterday. A new downward wave has broken the low of the previous one, and the last upward wave (today's) has no chance of surpassing Monday's peak at this point. Therefore, there is currently no sign of the bearish trend coming to an end.
On Monday and Tuesday, Christine Lagarde spoke twice, and her speeches raised certain questions on both occasions. On Monday, she didn't answer the question about a rate hike in September, and on Tuesday, she avoided any questions about the PEPP (Pandemic Emergency Purchase Programme). This factor alone could have supported the bears yesterday. One member of the ECB's Governing Council, Villeroy de Galhau, stated this morning that he is ready to discuss any decisions at the upcoming meetings, but the regulator is very close to the peak of interest rates. In my view, this is also "dovish" rhetoric that reflects the imminent end of the tightening program.
Thus, the current information background also supports the bears, and I conclude that the decline of the European currency will continue. We have begun to receive too many signals indicating the readiness to halt the ECB's rate hikes.
On the 4-hour chart, the pair has consolidated above the descending trend corridor and resumed its decline. This is a rather strange moment, but overcoming two levels on the way down and breaking the last low indicates a "bearish" trend. Therefore, the decline in quotes may continue toward the next corrective level of 100.0% (1.0639). There are no imminent divergences observed with any of the indicators today.
Commitments of Traders (COT) report:
In the last reporting week, speculators closed 8,849 long contracts and opened 3,232 short contracts. The sentiment among large traders remains "bullish" and is not weakening too quickly overall. The total number of long contracts held by speculators now stands at 230,000, while short contracts amount to 83,000. I believe that the situation will gradually change in the opposite direction over time, but for now, bearish traders are not attacking the bulls too aggressively. The high value of open long contracts suggests that professional traders may close them shortly – there is currently too strong an imbalance in favor of the bulls. I believe that the current figures allow for the continuation of the euro's decline in the coming weeks. The ECB is increasingly signaling the end of the PEPP tightening procedure.
The economic calendar for the United States and the European Union:
European Union – Retail Sales Volume (09:00 UTC).
United States – S&P Global Services PMI Business Activity Index (13:45 UTC).
United States – ISM Non-Manufacturing Business Activity Index (14:00 UTC).
United States – Federal Reserve's "Beige Book" (18:00 UTC).
On September 6th, the economic events calendar includes several important entries, including the crucial ISM index. The impact of the information background on traders' sentiment for the remainder of the day could be of moderate strength.
Forecast for EUR/USD and trader recommendations:
Sales could be initiated on the hourly chart when closing below 1.0864, with targets at 1.0810 and 1.0744. A rebound from the level of 1.0810 allowed these sales to remain open. Both targets have now been achieved, but you can continue to hold sales with a target of 1.0637 if there is a rebound from the level of 1.0744. Buying today can be considered when closing above the level of 1.0744 with a target of 1.0810.
