On Tuesday, the EUR/USD pair continued to decline and reached the 100.0% corrective level at 1.1325. A rebound from this level favored the European currency, but the bulls remain extremely weak. Some growth toward the 76.4% Fibonacci level at 1.1416 is possible, but a consolidation below 1.1325 is much more likely, which would suggest further downside toward the 127.2% corrective level at 1.1220.
The wave structure on the hourly chart remains bearish. The last completed upward wave failed to break the previous peak, while the latest downward wave broke the previous low and has continued to develop for the fourth consecutive week. Following the September FOMC meeting, traders expect at least one more monetary policy tightening by the end of the year and another one next year. This factor continues to provide strong support for the US currency.
The fundamental backdrop was relatively weak on Tuesday, while traders spent the entire day selling euros and buying dollars, which has become a regular pattern in recent weeks. There was, of course, also an "explanation" for the euro's latest decline. Christine Lagarde delivered a speech in which she slightly reduced market expectations for further monetary policy tightening, saying that the energy shock was unlikely to feed through into wages after two rounds of rate hikes. In other words, the ECB does not expect wage growth to accelerate, which could otherwise require more aggressive policy-tightening measures. Lagarde said that the central bank would take a "measured approach" to interest rates, which, in my view, is not a sign of weakness or a weakening of the hawkish stance. However, the market currently does not need a specific reason to buy the dollar. It is worth noting that the dollar rose yesterday not only against the European currency; therefore, Christine Lagarde's speech had no meaningful impact on trader sentiment.
On the 4-hour chart, the pair declined to the 0.0% Fibonacci level at 1.1325 and rebounded from it after the formation of a second bullish divergence on the CCI indicator. Thus, some growth toward the 23.6% corrective level at 1.1449 may occur in the near term. Consolidation below 1.1325 would increase the likelihood of another decline in the euro.
Commitments of Traders (COT) Report:
During the latest reporting week, professional traders opened 11,708 Long positions and 37,049 Short positions. Over seven weeks in February and March, the bulls' overwhelming advantage disappeared because of the war in Iran, while over the past 26 weeks the situation has become more balanced amid market expectations of an end to the conflict. The total number of Long positions held by speculators currently stands at 221,000, while the number of Short positions stands at 273,000. The bears remain in the lead.
Overall, over the long term, large market participants continue to show strong interest in the euro. Events of various kinds around the world — of which there has been no shortage in recent years — inevitably affect investor sentiment and put pressure on risk-sensitive currencies. In particular, the market is currently keeping a close eye on the situation in the Middle East, where the war appears to end and then resume again. However, geopolitics no longer determines the dollar's direction on its own. By contrast, the FOMC's more restrictive monetary policy stance has strengthened the dollar in recent months.
News Calendar for the US and European Union:
Germany – Retail Sales Change (06:00 UTC).Germany – Unemployment Rate (07:55 UTC).Germany – Consumer Price Index (12:00 UTC).US – ADP Employment Change (12:30 UTC).US – Second-quarter GDP Change (12:30 UTC).US – Personal Income and Spending (12:30 UTC).The September 30 economic calendar contains six releases, none of which stands out in particular. They are all approximately equal in importance. The economic backdrop may affect market sentiment throughout Wednesday.
EUR/USD Forecast and Trading Tips:
Buying the pair is possible today following a rebound from 1.1325 on the hourly chart, with targets at 1.1416 and 1.1473. Selling positions are possible following a close below 1.1325, with a target of 1.1220.
The Fibonacci levels are drawn from 1.1325 to 1.1712 on the hourly chart and from 1.1849 to 1.1325 on the 4-hour chart.