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EUR/USD 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. To launch a full-scale advance, they only need to invalidate "bearish" imbalance 17. However, today, they took a step that brings them closer to achieving this. The fundamental backdrop remains unfavorable for the bears. Traders did not receive any clear signals from Kevin Warsh that he was ready to support monetary policy tightening. In July, the number of new Nonfarm Payrolls jobs decreased 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 produces another weak result, this would be a sufficiently strong reason for the Fed to abandon a rate hike. 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 their "hawkish" expectations for September. However, this is still not enough to invalidate imbalance 17.
Let me remind you that expectations of Fed monetary policy tightening are currently just expectations, which can change in response to geopolitical developments or economic data. The latest U.S. labor-market data showed weak results, inflation is slowing, and GDP growth is losing momentum. These three factors raise doubts about an FOMC rate hike not only in September but also in the foreseeable future. If the Strait of Hormuz is reopened in the near future, this would only reduce energy-related pressures and allow inflation to continue declining, further weakening the bears' prospects. The bears' only chance at present lies in a new escalation and a prolonged blockade of the Strait of Hormuz.
The current technical picture points to the continuation of the "bearish" impulse. "Bearish" imbalance 17 was tested, but the reaction to it was weak. Therefore, this pattern may be invalidated. A "bullish" imbalance 19 has also formed, allowing the bulls to look ahead 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 opening 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 was again unfavorable for the bears on Friday. The first report of interest was released only a few hours ago. U.S. Retail Sales declined by 0.6% in July, compared with the market expectation of +0.1%, while the University of Michigan Consumer Sentiment Index came in at 51.0 points, versus a forecast of 54.5. The morning report on Eurozone GDP was ignored by the market, while the bulls had already begun their advance in the morning. Thus, the bulls were positioned one step ahead from the beginning of the day, while the U.S. reports merely provided additional support.
There are still numerous reasons for the bulls to launch an advance in 2026, and 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 do not see any significant factors supporting the U.S. currency, despite the FOMC's "hawkish" stance. Nevertheless, the bears are still leading the advance for now, while there are no "bullish" signals.
On August 17, the economic calendar contains no releases. The economic backdrop will have no impact on market sentiment on Monday.
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 invalidated 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 relatively strong rise in the euro, there are currently no clear opportunities to open long positions. Traders should wait for new "bullish" patterns to form, for imbalance 19 to be tested, or consider trading the British pound.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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