The EUR/USD pair remains within a local bearish impulse, which has every chance of developing into a broader bearish trend. Despite the pair's decline in recent months, I still believe that the broader bullish trend remains intact. As the chart above illustrates, price action over the past year has largely been moving sideways. Therefore, the bullish trend that began after Donald Trump returned to office should not yet be considered over. However, if developments continue to unfold as they have in recent weeks, that trend could eventually come to an end.
It is worth recalling that on June 17, Iran and the United States signed a framework agreement intended to fully reopen the Strait of Hormuz and launch negotiations on Iran's nuclear program. That outcome might have been achievable if Israel had ceased its military operations in Lebanon, tensions in the Strait of Hormuz had subsided, and both sides had fully adhered to the agreement they had signed. At present, however, the market has little confidence in a lasting rapprochement between Iran and the United States. As a result, demand for the U.S. dollar remains elevated, reinforced by both the Federal Reserve and Tehran. In June, the Fed signaled that it remains prepared to raise interest rates this year, and for now, traders are treating that possibility as credible regardless of whether it ultimately materializes. Meanwhile, Tehran appears to recognize its negotiating leverage and continues to set its own conditions. It was reported today that Iran has categorically rejected direct negotiations with the United States, demanding a complete cessation of hostilities in the region and the release of its frozen foreign assets before discussing any nuclear concessions.
Geopolitical developments have taken a back seat in recent weeks because of the Federal Reserve, but they could quickly return to the forefront. Tehran and Washington signed a memorandum of understanding, extended the ceasefire by 60 days, and began working toward the full reopening of the Strait of Hormuz and a comprehensive nuclear agreement. However, the market has not seen the expected weakening of the U.S. dollar following the easing of geopolitical tensions, nor has it seen the euro strengthen despite the ECB's tighter monetary policy. On the contrary, the bears continue to dominate despite the prevailing geopolitical and fundamental backdrop. Now that geopolitical developments are once again disappointing market participants, renewed selling pressure would not be surprising. In my view, however, the bulls' position is not weak enough to justify another retreat. Nevertheless, each passing day continues to demonstrate the bears' strength and the bulls' inability to regain control.
The current chart structure continues to point to the bearish impulse that began on April 17. Bearish Imbalance 17 has not yet been mitigated and therefore has not generated a sell signal. Last week, Bearish Imbalance 18 was formed, which may trigger a market reaction as early as today or tomorrow. Only if Imbalance 18 is invalidated will I once again expect the euro to resume its advance, which, in my opinion, would be the more technically justified scenario. In that case, I would also look for bullish price patterns to develop, as I still believe the broader bullish trend has not yet ended.
Wednesday's economic data created additional headwinds for the euro. First, inflation in the eurozone slowed more than traders had expected. Second, renewed difficulties in negotiations between Iran and the United States have further weakened market optimism toward the euro. I see little value in reviewing every economic report and event of the day, as traders remain almost exclusively focused on the U.S. dollar, paying attention only to developments that support further dollar buying.
The bulls still have plenty of reasons to regain control in 2026, and the conflict in the Middle East has not significantly changed that picture. Structurally and fundamentally, Trump's policies—which led to a sharp decline in the U.S. dollar last year—have not changed. At present, I do not see any strong long-term factors supporting the U.S. dollar despite the FOMC's hawkish stance. EUR/USD is approaching a series of prominent lows and swing points where liquidity may be taken, potentially providing a signal for the current bearish impulse to reverse.
The economic calendar for July 2 contains four scheduled events, at least two of which can be considered highly important. As a result, the fundamental backdrop may have a significant impact on market sentiment during the second half of Thursday's trading session. Friday is Independence Day in the United States.
In my view, the pair remains in the process of forming a broader bullish trend. Although the fundamental backdrop shifted sharply in favor of the bears four months ago, the overall bullish trend cannot yet be considered invalidated or complete. Therefore, the bulls may launch a new advance after liquidity has been swept below the most prominent lows. However, opening long positions at the current stage does not appear justified. It would be preferable to wait until the current bearish impulse is complete and bullish technical patterns emerge.
At present, traders have two bearish imbalances that can serve as potential areas for opening short positions. However, I would emphasize that the pair is approaching four major swing points where liquidity could be taken, while the fundamental backdrop supporting the U.S. dollar remains questionable. Therefore, I continue to expect a bullish recovery, but I would first like to see technical confirmation of that scenario. Alternatively, traders may wait for a new sell signal from Bearish Imbalance 18.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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