On Thursday, the EUR/USD pair rebounded from the 161.8% retracement level at 1.0873, turning in favor of the US dollar and resuming its decline toward the support zone of 1.0781–1.0797. A rebound from this zone could signal a turnaround in favor of the euro and a potential rise toward the 1.0873 level. A sustained break above 1.0873 would suggest a stronger rise for the euro.
The wave pattern is clear. The last completed upward wave (September 25-30) did not surpass the peak of the previous wave, while the new downward wave (still forming) has broken the lows of the previous three waves. Thus, the pair is currently forming a new bearish trend. In the near future, a corrective wave may emerge, but the bulls have lost market initiative recently. Regaining it will require significant effort, and it is unlikely they can achieve it soon.
The market context on Thursday clearly indicated what to do with the euro. The conclusion is clear: a selling strategy is appropriate. The ECB not only lowered all three interest rates but also indicated that it is open to another phase of monetary easing in December. Additionally, the accompanying statement mentioned that interest rates would be reduced to neutral levels not by 2026, but by 2025. This suggests that the ECB will cut rates faster than traders had anticipated. For the bears, this was another opportunity to sell aggressively, as the ECB's policy actions and intentions are clear. The European Union's economy is showing too weak growth, bordering on "stagnation" and "recession." ECB President Christine Lagarde does not expect a recession, but there is still a sense that the regulator is navigating a challenging situation. Another crucial point is that inflation in the Eurozone has fallen below the 2% target, allowing for faster rate cuts. In my opinion, even if the euro rises in the short term during a correction, it will continue to fall afterward.
On the 4-hour chart, the pair continues its decline toward the 38.2% Fibonacci level at 1.0807. Both indicators have been signaling bullish divergences for more than a week, but they only suggest a potential start of a correction, as the trend has shifted to bearish. Traders are simply ignoring these signals for now. A rebound from the 1.0807 level would favor the euro and some upward movement toward 1.0872 and 1.0935.
Commitments of Traders (COT) Report:
During the latest reporting week, speculators closed 4,407 long positions and opened 11,822 short positions. The sentiment of the Non-commercial category turned bearish a few months ago, but currently, the bulls are dominating again. The total number of long positions held by speculators is now 174,000, while short positions total 135,000.
However, for the fifth week in a row, major players are mostly shedding their positions in the euro. In my view, this could be a precursor to a new bearish trend or at least a significant correction. The key driver for the dollar's decline—expectations of FOMC monetary easing—has already been factored in, and there are no more reasons for the dollar to fall. New factors may arise over time, but for now, a rise in the U.S. dollar seems more likely. The technical analysis also points to the start of a bearish trend. Thus, I am preparing for a prolonged decline in the EUR/USD pair.
News Calendar for the US and Eurozone:
US – Change in Building Permits (12:30 UTC).
US – Housing Starts (12:30 UTC).
On October 18, the economic events calendar contains just two entries, and they are not the most critical. The influence of the information background on market sentiment may be weak.
Forecast for EUR/USD and Trader Advice:
Sales of the pair were possible after a close below 1.1139 on the 4-hour chart, with targets at 1.1081, 1.1070, 1.1013, and 1.0984. All targets were achieved. Selling the euro was also possible after breaking below 1.0873, targeting 1.0797. I would consider buying the pair upon a rebound from the 1.0797 level.
Fibonacci levels are constructed based on 1.1003–1.1214 on the hourly chart and 1.1139–1.0603 on the 4-hour chart.
