The EUR/USD pair remains within a local bearish impulse, although the bulls have gained some opportunities over the past week and a half. Last week, the international economic forum in Portugal took place, where Kevin Warsh reaffirmed the need to bring inflation lower. However, he did not clarify whether the Federal Reserve intends to achieve this through tighter monetary policy or expects inflation to ease naturally as energy prices decline. Since the market received no direct answer, its attention will now remain focused on upcoming inflation data.
Recent U.S. labor market reports have shown that inflation is no longer the only concern. Job creation remains subdued. Over the past three months, the number of new jobs has been roughly 100,000 below market expectations. As a result, the slowing labor market may force the FOMC to weigh any decision to tighten monetary policy much more carefully. The next inflation report should provide a clearer answer as to whether tighter monetary policy—currently anticipated by most market participants—is likely to materialize at all.
Over the past week and a half, the euro has managed to post a modest recovery. This bullish advance was sufficient to invalidate Imbalance 18, allowing traders to shift their focus toward Imbalance 17. As long as Imbalance 17 remains valid, the bearish impulse remains intact, although I would prefer to see the formation of a new bullish impulse. Nevertheless, the bulls have been given an opportunity. The question now is whether they can capitalize on it.
Geopolitical developments have taken a back seat in recent weeks as attention shifted to the Federal Reserve, but they could once again become the primary market driver. Tehran and Washington have signed a memorandum of understanding, extended the ceasefire for another 60 days, and begun work toward the full reopening of the Strait of Hormuz and a broader nuclear agreement. Despite declining geopolitical tensions, we have not seen the expected weakening of the U.S. dollar or euro strength following the ECB's monetary tightening. On the contrary, the bears continued to dominate despite the broader fundamental and geopolitical backdrop. Now that geopolitical developments are once again disappointing market participants, renewed bearish pressure would not be surprising. Even so, I do not believe the bulls' position is weak enough to justify another retreat.
The current technical picture still points to the continuation of the bearish impulse that began on April 17. Bearish Imbalance 17 has not yet been mitigated, while Imbalance 18 was invalidated following weak U.S. labor market data. No bullish patterns have formed so far, and none are likely to emerge over the next few days. Therefore, the bulls may continue the corrective advance toward Imbalance 17, but there is currently no technical basis for trading this move. It is also worth noting that last week's price swept liquidity below the August 1 low from last year (the red line on the chart). At present, this remains the only meaningful technical argument supporting the bullish case.
Tuesday's economic calendar was virtually empty. As expected, traders showed little interest in the industrial production report. The ADP Employment Report also failed to attract attention. As a result, the market has now posted two consecutive sessions of extremely limited price action, and Wednesday may well become the third.
The bulls still have plenty of reasons to remain optimistic in 2026, and the conflict in the Middle East has done little to change that. From both a structural and long-term perspective, Donald Trump's policies—which contributed to the sharp decline in the U.S. dollar last year—have not fundamentally changed. Despite the FOMC's hawkish stance, I still do not see any strong long-term support for the U.S. dollar. The EUR/USD pair is now approaching a series of significant lows and swing points where liquidity could be swept, potentially signaling the end of the current bearish impulse.
United States
On July 8, the economic calendar contains only one event, which I do not consider significant. It is largely a formality. As a result, the impact of the economic calendar on market sentiment on Wednesday is likely to remain minimal or nonexistent.
In my view, the pair remains in the process of forming a bullish trend. Although the fundamental backdrop shifted sharply in favor of the bears four months ago, the broader uptrend cannot yet be considered invalidated or complete. Therefore, the bulls may begin a fresh advance after liquidity has been swept below clearly identifiable lows. However, opening long positions at the current stage is not advisable. Bullish technical patterns should form first.
At present, traders have two bearish imbalance zones at their disposal, one of which has already been invalidated. However, I would also draw attention to the proximity of four significant swing points where liquidity could be swept, as well as to the questionable fundamental basis for the recent strength of the U.S. dollar. Consequently, I continue to expect a bullish advance, but it is important to obtain at least some technical confirmation of this scenario. Otherwise, traders should wait for a sell signal to emerge within Imbalance 17.
*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.
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