On Tuesday, the EUR/USD pair resumed its decline, falling below the 76.4% Fibonacci level at 1.0858. As a result, the downtrend may continue towards the next Fibonacci level at 61.8% – 1.0822 and towards the critical support zone of 1.0785–1.0797. With the pair now below the upward trend channel, my outlook is bearish. Although a rise is possible on negative news for the dollar, I do not anticipate it being significant enough to trade.
The wave situation has become slightly more complex but remains clear overall. The last upward wave broke the peak of the previous wave and can be considered complete. Therefore, bears have started forming a corrective wave. For the bullish trend to be reversed, bears need to break the low of the previous downward wave, around 1.0668. This requires a further drop of 180 points. With current trader activity, this could take 2-3 weeks.
The information background on Tuesday was lacking. Nevertheless, bears resumed their attacks. I can only anticipate a corrective wave, as a more substantial drop in the euro might require a strong information backdrop. This week features few significant events, so bears may not receive strong support. Business activity indices for Germany and the Eurozone will be released in a few hours; however, these data would need to be surprisingly unexpected for traders to see a move of at least 30-40 points. We may observe a sluggish decline with regular upward corrections in the coming weeks. Next week, new labor market data from the US might give bears something to rely on. If US statistics disappoint again, bulls might launch a new offensive.
On the 4-hour chart, the pair reversed in favor of the US dollar and fell below the 38.2% corrective level at 1.0876. Consequently, the downtrend may continue towards the 50.0% Fibonacci level at 1.0794. No looming divergences are observed today on any indicator. The decline in quotes has continued since a bearish divergence was formed on the CCI indicator.
Commitments of Traders (COT) Report:
During the last reporting week, speculators opened 14,108 long positions and closed 7,018 short positions. The sentiment of the "Non-commercial" group shifted to bearish a few weeks ago, but currently, bulls are dominant again. The total number of long positions held by speculators now stands at 180,000, while short positions are at 155,000.
The situation continues to favor the bears. I see no long-term reasons to buy the euro, as the ECB has started easing monetary policy, which will reduce the yield on bank deposits and government bonds. These will remain high in America for several months, making the dollar more attractive to investors. The potential for a decline in the euro, according to the COT reports, is significant. However, it is important to keep in mind that graphical analysis currently does not support a confident prediction of a strong decline in the euro.
News Calendar for the US and Eurozone:
- Eurozone – Services PMI in Germany (07:30 UTC)
- Eurozone – Manufacturing PMI in Germany (07:30 UTC)
- Eurozone – Services PMI (08:00 UTC)
- Eurozone – Manufacturing PMI (08:00 UTC)
- USA – Services PMI (13:45 UTC)
- USA – Manufacturing PMI (13:45 UTC)
On July 24, the economic event calendar includes several entries. The impact of the information backdrop on trader sentiment today could be moderate.
Forecast for EUR/USD and Trading Tips:
Selling the pair was viable when it fell below the 1.0917 level on the hourly chart, with a target of 1.0858. Since the bears have broken below the 1.0858 level, these sales can be held with targets of 1.0822 and lower. I would not consider buying in the coming days, as the trend has turned bearish.
The Fibonacci level grids are constructed from 1.0917–1.0668 on the hourly chart and from 1.0450–1.1139 on the 4-hour chart.
