EUR/USD continued its decline on Tuesday toward the 23.6% Fibonacci correction level — 1.1395 — after a bounce from the 50.0% Fibo level at 1.1472, and by the end of the day it reached the target. A rebound of quotes from 1.1395 would favor the euro and a resumption of gains toward 1.1472. A close below 1.1395 could signal the end of the range and allow a continuation of the decline toward the 0.0% correction level at 1.1325.
The wave structure on the hourly chart remains bearish, despite a prolonged (but weak) bullish push. The last completed upward wave exceeded the previous peak by only a few pips, while the most recent downward wave has not yet broken the prior low. Geopolitics is again deteriorating as Iran and the United States have resumed blockades of the Strait of Hormuz and active military actions. One can judge the end of the bearish trend only after a breach of the 1.1473 peak, but bulls have shown weakness for three weeks.
The news flow on Tuesday did not provoke any reaction from traders. ZEW economic expectations indices for Germany and the EU were ignored, and traders no longer react to new threats from Donald Trump against Iran. Geopolitics is the only topic that could have drawn traders' attention on Tuesday, but they chose not to focus on it. The war in the Middle East continues, and that is all that needs to be said. Oil is rising again, and that is all that needs to be said. Inflation is likely to accelerate in July in both the United States and the euro area, which will force central banks to reassess the scope for policy tightening. Thus, bears' prospects look slightly more attractive now, but only because the Fed may return to discussing tightening; the market is not paying attention to the ECB's monetary constraints, and the geopolitical conflict is supportive of the safe-haven US dollar. At the same time, traders have priced much of the geopolitical risk throughout 2026, the dollar has risen in recent months, and the most negative scenario is already reflected in prices. I do not expect a sharp rally in the US currency.
On the 4-hour chart, the pair is trading sideways. A close above 1.1411 would support some upside, but the price has been changing direction too frequently lately, and traders are inactive. No emerging divergences are visible today on any indicator. The downtrend channel remains in force.
Commitments of Traders (COT) report:
During the last reporting week professional players opened 6,877 long contracts and 3,255 short contracts. In February and March, over seven weeks, the bulls' overwhelming advantage evaporated because of the war with Iran, and over the past sixteen weeks the situation has evened out amid a fragile ceasefire and hopes for an end to the conflict. The total number of long contracts held by speculators now stands at 230,000 and short contracts at 245,000.
Overall, over the long run large players continue to show substantial interest in the euro. Certainly, events of various kinds in the world, of which there has been no shortage in recent years, influence investor sentiment. In particular, the market is watching developments in the Middle East, where the war sometimes ends and sometimes restarts. The market first ignored the ceasefire and then ignored the resumption of hostilities. As a result, geopolitics no longer unilaterally determines the dollar's fate.
US and euro area economic calendar:
On July 22, the economic calendar contains no items of interest. Economic releases will not influence market sentiment on Wednesday.
Forecast for EUR/USD and trading advice:
Longs are possible today on a bounce from 1.1395 on the hourly chart with targets at 1.1438 and 1.1472. New short trades are possible on an hourly close below 1.1395 with a target of 1.1325. Market moves remain extremely weak.
Fibonacci grids are plotted from 1.1620 to 1.1325 on the hourly chart and from 1.1411 to 1.1850 on the 4-hour chart.