The EUR/USD pair reversed in favor of the euro late last week after liquidity was swept below the most recent low. Thus, there were technical grounds for a modest recovery in the European currency. However, at this point, bears have exactly the same grounds for launching their own attacks. Yesterday, liquidity was swept above the October 16 high. Of course, not every liquidity sweep necessarily signals a change in the direction of the market. However, it is worth noting that bulls are once again failing to take advantage of the opportunities available to them. This week alone, they had an opportunity to launch a sustained advance following the US elections and the eurozone inflation report. However, what difference have the election results and inflation figures made if the market had previously ignored these same factors?
Over the past two months, the fundamental backdrop has often favored the European currency, but this has had no noticeable impact on the charts. This week, it became clear that the Republican Party had suffered a decisive defeat in the elections and that inflation in the eurozone had accelerated to 4%. Both developments favor the euro. The US Congress will now be divided, and Democrats and Republicans are likely to find it just as difficult to reach agreements as before. Consequently, many important government decisions may now face significant delays. Higher inflation in the eurozone points to further monetary policy tightening by the ECB, which is also a bullish factor. If the market is pricing in an FOMC rate hike, it should also be pricing in an ECB rate hike.
It is worth recalling that one of the main reasons behind the dollar's appreciation over the past two months was the Fed's hawkish stance. However, in reality, the Fed's position is not particularly hawkish compared with those of other central banks. For example, the ECB is set to deliver its third rate hike in December, while the Bank of England only began its monetary policy tightening cycle today. This means that it could ultimately raise rates more aggressively than the Fed. The pound is responding to these factors, whereas the euro is not.
At present, there are no signs that the bearish advance is coming to an end. Imbalance 24 remains valid, and the price could react to it, potentially forming a sell signal. Bulls need to invalidate imbalance 24 and form bullish patterns before any meaningful recovery can be expected. This would require a sharp upward move in the euro, which has yet to materialize.
In September, the FOMC raised interest rates and signaled its readiness to begin tightening monetary policy. This was enough to trigger a substantial bearish advance that has continued to this day. However, even after the Fed tightened monetary policy in September and with further tightening possible in December, it would be incorrect to conclude that the euro has received no positive news during this period.
Overall, the fundamental backdrop continues to favor the bulls. Despite the Fed's more hawkish monetary policy stance, this is not the only factor determining exchange rates. The eurozone also faces economic challenges, but the point is that problems exist everywhere, while only the euro continues to decline. Both central banks are tightening monetary policy, yet only the dollar is appreciating. Nevertheless, it is not advisable to expect the euro to recover before bullish signals emerge. Buying the European currency in advance is also not recommended.
The current technical picture indicates that the bearish impulse remains intact. Among the relevant patterns, imbalance 24 remains in play and could be tested in the near future. The liquidity sweep above 1.1270 is also currently working in favor of the bears.
The economic data flow on Thursday was very weak from the traders' perspective, but they remained unfazed and returned to their preferred activity of recent months: selling the euro. A technical signal indicating further euro weakness has formed, so the current decline can be considered technically justified.
Bulls still have numerous reasons to launch attacks in 2026. Structurally and fundamentally, Trump's policies, which led to a significant decline in the dollar last year, have not changed. At present, there are no major factors supporting the US currency, despite the FOMC's hawkish stance. However, market sentiment does not change easily or quickly.
Economic Calendar for the United States and the European Union:
- Germany – Change in Industrial Production (07:00 UTC).
- European Union – Change in Retail Sales (10:00 UTC).
- United States – Change in Nonfarm Payrolls (13:30 UTC).
- United States – Unemployment Rate (13:30 UTC).
- United States – Change in Average Hourly Earnings (13:30 UTC).
- United States – University of Michigan Consumer Sentiment Index (15:00 UTC).
On November 6, the economic calendar contains six releases, at least two of which are important. Economic data could have a significant impact on market sentiment during the second half of Friday's trading session.
EUR/USD Forecast and Trading Tips:
In my view, the pair remains in the process of forming a bullish trend that has been undergoing a corrective phase for an entire year. The fundamental backdrop shifted sharply in favor of the bears eight months ago, but the broader trend, which has been in place for four years, cannot be considered invalidated or complete. Bulls may resume their advance before the end of the year. However, their only meaningful opportunities at present are the 1.1066 low established in June last year and the 1.1114 low established several weeks ago. Liquidity was swept below the latter, but bulls lacked the strength even to push the price toward the nearest pattern. A new sell signal could form within imbalance 24, but the price must first reach that zone.
