The EUR/USD pair had been declining for fifteen consecutive days, apart from a few brief pauses. During this period, the European currency lost 340 points. The decline in the European currency began three weeks ago as the market prepared for an FOMC rate hike. Since then, the market has continued buying the dollar based on the Fed's hawkish monetary policy stance, which is regularly reaffirmed by FOMC members. However, many Fed officials openly state that further monetary policy tightening is necessary, while at the same time they do not provide specific guidance on the extent of further tightening. The latest dot plot showed that another 0.25% rate hike should be expected. Yesterday, however, New York Fed President John Williams said that the Fed should not rush into further policy tightening. Has the dollar appreciated too much on expectations of two rate hikes, the timing of the second of which remains uncertain? The dollar is currently rising as if the Fed had shifted from a completely neutral stance to an ultra-hawkish one, with the market having no reason to expect such a scenario. In reality, however, monetary policy easing could begin as early as 2027, as Fed policymakers themselves have stated that the impact of high oil prices will be limited in duration. The same applies to the impact of Donald Trump's trade tariffs.
Nothing is currently able to stop the decline in the European currency. Neither tighter ECB policy, nor favorable economic data from the European Union, nor the technical picture and bullish patterns have been able to do so. Since imbalance 19 has been invalidated, the European currency now has every chance of falling below the psychological level of $1.10. Moreover, bullish imbalance 19 has not merely been invalidated; it has turned into a bearish inverted imbalance and has already generated a new sell signal. The bulls are supported only by the proximity of the last two swing lows, from which liquidity could be taken, potentially triggering a bullish move.
Last week, the FOMC indicated its readiness to continue tightening policy, which was enough to allow the bears' broad advance to continue. Even after the Fed's September tightening and a possible hike in October or December, I do not see what other factors could encourage traders to continue buying the US currency. The dollar has performed strongly in recent weeks, but what factors have supported it during this period? FOMC monetary policy tightening and nothing else?
Overall, in my view, the fundamental backdrop continues to favor the bulls. Despite the Fed's more hawkish monetary policy stance, this is not the only factor determining exchange rates. I would like to remind readers that US Treasury yields are reaching record highs, placing a significant burden on the budget; the US economy has been slowing in recent quarters; Donald Trump resumed his trade and non-trade disputes with numerous countries around the world in 2026; and the US stock market continues to raise serious concerns because of uncontrolled leveraged investments in technology companies involved in AI development.
The current technical picture indicates that bearish momentum remains in place. Despite the highly contradictory price movement in recent weeks, traders have at least two areas of interest for selling opportunities. The bulls can only hope for the lows of July 28 and June 24, from which liquidity could be taken.
The economic backdrop finally supported the European currency on Wednesday. First, John Williams of the Fed cooled the bears' expectations. Second, the German inflation report showed stronger-than-expected growth, reaching 3.3%, increasing the likelihood of further ECB tightening. Third, the core PCE price index came in below traders' expectations, reducing the likelihood of further Fed tightening in October. The ADP and GDP reports in the US, which came in above expectations, limited the dollar's decline. For now, the bulls have nothing to rely on other than liquidity being taken from the lows.
The bulls still have numerous reasons to mount an advance in 2026. 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 significant factors supporting the US currency despite the FOMC's hawkish stance. Geopolitical developments, which supported demand for the US currency during much of the first half of 2026, are no longer providing such support.
The October 1 economic calendar contains four entries, of which I would highlight only the ISM index. The economic backdrop could influence market sentiment in the second half of Thursday's session.
In my view, the pair remains in the process of forming a bullish trend that has paused for an entire year. The fundamental backdrop shifted sharply in favor of the bears seven months ago, but the trend itself cannot be considered canceled or complete. In the long term, I would say that the pair is trading within a range. A range does not invalidate the broader bullish trend. Therefore, the bulls could resume their advance in 2026, but their remaining opportunities are limited to the lows at 1.1354 and 1.1325, from which liquidity could be taken. The bears have received a new sell signal within imbalance 19. In my view, the current decline is risky for traders because it lacks clear and sufficient fundamental grounds. However, there are currently no clear grounds for buying either.
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