FX.co ★ EUR/USD – Smart Money Analysis: The Market Lacks a Clear Direction

The EUR/USD pair remains within the local bearish impulse that began on April 17, but with each passing day, the bulls are putting increasing pressure on the prevailing trend. They need only to invalidate Bearish Imbalance 17 to launch a full-fledged advance. For two weeks now, the bulls have been unable to overcome the 1.1526–1.1575 level. At the most critical moment, the bulls lost momentum and have been unable to consolidate above this pattern. The fundamental backdrop remains unfavorable for the bears. Traders did not receive any clear signals from Kevin Warsh that he was ready to tighten monetary policy. In July, the number of new Nonfarm Payrolls fell by 23,000, marking a decline for the fourth consecutive month. Inflation slowed by 0.7% in June and by another 0.1% in July. All of this suggests that the Fed should not be expected to tighten monetary policy in September.

As I warned in recent weeks, if the labor market posts another weak result, this will be a sufficiently strong reason for the Fed to refrain from raising interest rates. Of course, this cannot be stated with complete certainty, as there will be at least one more inflation report and one more labor market report before the next FOMC meeting. However, I am almost certain that the Fed will maintain a wait-and-see stance in September as well. Almost all traders are now abandoning hawkish expectations for September. However, this is still not enough to invalidate Imbalance 17.

Let me remind you that expectations of tighter Fed monetary policy are currently just expectations and may change in response to geopolitical developments or economic data. The latest U.S. labor market data showed weak figures, inflation slowed, and GDP growth weakened. These three factors raise doubts about FOMC rate hikes not only in September but also in the foreseeable future. If the Strait of Hormuz is reopened in the near future, this will only reduce energy-related pressure and allow inflation to continue slowing, further weakening the bears' prospects. The bears' only opportunity at present lies in a new escalation and a prolonged blockade of the Strait of Hormuz.

The current chart structure indicates that the bearish impulse remains in place. Bearish Imbalance 17 was tested, but the reaction to it was weak. Therefore, this pattern may be invalidated. Bullish Imbalance 19 has also formed, allowing the bulls to look to the future with optimism. If Imbalance 17 is invalidated while Imbalance 19 remains untested, traders will have to wait for new bullish patterns before they can open long positions. There are currently no grounds whatsoever for short positions. Even if Imbalance 17 eventually produces another reaction, such a signal would have little value, given that the pattern has been forming for more than two weeks.

The economic backdrop on Thursday was fairly weak. Eurozone industrial production volumes again fell short of the market's elevated expectations, while the Producer Price Index generated no reaction among traders who had received the inflation report just one day earlier. The market has returned to a wait-and-see mode, and trader activity is once again minimal.

There are still numerous reasons for the bulls to advance in 2026, and even the war in the Middle East has not reduced their number. Structurally and globally, Trump's policies, which led to a significant decline in the dollar last year, have not changed. At present, I see no significant factors supporting the U.S. currency despite the FOMC's hawkish stance. Nevertheless, the bears continue to attack for now, while there are no bullish signals.

News Calendar for the United States and the European Union:

• European Union – Change in GDP in the second quarter (09:00 UTC).
• United States – Change in retail sales (12:30 UTC).
• United States – University of Michigan Consumer Sentiment Index (14:00 UTC).

On August 14, the economic calendar contains three entries, none of which I consider important. The impact of the economic backdrop on market sentiment on Friday will be weak.

EUR/USD Forecast and Trading Tips:

In my view, the pair remains in the process of forming a bullish trend. The fundamental backdrop shifted sharply in favor of the bears five months ago, but the trend itself cannot be considered canceled or complete. Thus, the bulls may well continue their advance after two liquidity sweeps of clearly defined lows. A sell signal may have formed within Imbalance 17, but the reaction was weak, so this pattern will most likely be invalidated. A bullish signal may form within Imbalance 19, but the price is moving increasingly farther away from this pattern. Despite the fairly strong rise in the single currency, there is currently no suitable setup for opening long positions. Traders should wait for new bullish patterns to form, for Imbalance 19 to be tested, or trade the British pound instead.