29.07.202617:51 Forex Analysis & Reviews: EUR/USD – Smart Money Analysis: The FOMC May Adopt a More Hawkish Policy Stance

The EUR/USD pair remains within the local bearish impulse that began on April 17, while price action over the past four weeks has been minimal. The latest liquidity sweep signalled another decline, which has now been unfolding for the past two weeks. It is difficult to say how deep or prolonged the euro's decline will be, but the bears have one clear target—the latest swing low at 1.1325. A liquidity sweep below this swing could give the bulls a second chance to regain control.

As for the fundamental backdrop, I still do not see sufficient reasons for the bears to remain so dominant. Geopolitical developments continue to disappoint, but they are unlikely to be the key driver for traders, as the temporary ceasefire and the reopening of the Strait of Hormuz were largely ignored by the market. Last week, the ECB decided to leave its monetary policy unchanged, but that alone is hardly a reason to sell the euro. Today, the Fed will hold its policy meeting, where, in theory, the interest rate could be raised by 0.25 percentage points. However, leading analysts and major brokers estimate the probability of a hawkish outcome at no more than 30–35%. In other words, the Fed could surprise the market, but is it reasonable to expect a hawkish surprise from Kevin Warsh?

It is worth remembering that expectations of Fed monetary policy tightening are merely market expectations. The latest US labour market data were relatively weak, while the inflation report pointed to slower price growth. Consequently, the slowdown in both the labor market and inflation raises doubts about whether the FOMC will raise rates in the foreseeable future. Personally, I doubt that the Fed will necessarily begin a tightening cycle this year or that any rate increase would be anything more than a one-off move aimed at avoiding unnecessary conflict with Donald Trump.

Geopolitics remains a secondary factor. Tehran and Washington have withdrawn from the agreement reached on June 17, but this came as no surprise to traders. Donald Trump has reinstated sanctions on Iranian oil and restored the blockade of Iranian shipping, while Iran has once again closed the Strait of Hormuz and is attacking vessels attempting to pass through it without authorisation. A month ago, we did not see the anticipated weakening of the US dollar following the easing of geopolitical tensions, nor did we see the euro strengthen after the ECB tightened monetary policy six weeks ago. The bears have remained in control despite both the fundamental and geopolitical backdrop. Now that geopolitical tensions have deteriorated once again, the bears have formal justification for renewed selling pressure. Nevertheless, in my opinion, strained relations between Iran and the United States alone are no longer sufficient to fuel another bearish wave.

The current technical picture continues to point to the bearish impulse that began on April 17. Bearish Imbalance 17 has not yet been filled, while Imbalance 18 was invalidated by weak US labor market data. No bullish patterns have formed, and they are unlikely to appear in the coming days, as the market has remained largely range-bound for the past month. Consequently, the bulls may resume a corrective move towards Imbalance 17, but there is currently no technical basis for trading such a move. A liquidity sweep has already occurred below the low of August 1 last year (the red line on the chart), followed shortly afterwards by a liquidity sweep above the high of July 2. Thus, the bears currently have technical reasons to remain active, although no new bearish patterns have formed.

There were no significant macroeconomic releases on Wednesday. Later today, traders will learn the outcome of the FOMC meeting and closely monitor Kevin Warsh's remarks. If Warsh hints at possible policy tightening in September, this will support the bears. Otherwise, the bulls may attempt another advance.

The bulls still have plenty of reasons to launch an offensive in 2026, and even the conflict in the Middle East has not diminished them. Structurally and globally, Trump's policies—which led to a substantial weakening of the US dollar last year—have not changed. At present, I do not see any strong fundamental factors supporting the US dollar, despite the FOMC's hawkish stance. Nevertheless, the bears continue to dominate the market, while bullish signals remain absent.

Economic Calendar for the US and the Eurozone

• Germany – Q2 GDP Growth Rate (08:00 UTC)
• Eurozone – Q2 GDP Growth Rate (09:00 UTC)
• Eurozone – Unemployment Rate (09:00 UTC)
• Germany – Consumer Price Index (12:00 UTC)
• United States – Core PCE Price Index (12:30 UTC)
• United States – Q2 GDP Growth Rate (12:30 UTC)
• United States – Personal Income and Spending (12:30 UTC)

The economic calendar for July 30 contains seven scheduled releases, with GDP data expected to attract the greatest market attention. As a result, macroeconomic developments may influence market sentiment throughout Thursday.

EUR/USD Forecast and Trading Advice

In my view, the pair remains in the process of forming a broader bullish trend. Although the fundamental backdrop shifted sharply in favour of the bears five months ago, the overall trend cannot yet be considered cancelled or complete. Therefore, the bulls may launch another advance following a liquidity sweep below well-defined lows. However, opening long positions at the current stage is neither advisable nor sufficiently justified from a risk-management perspective, as there is no valid technical entry. Any assumptions made without technical confirmation amount to little more than speculation. At present, there are no bullish patterns. The only remaining technical signal available to bearish traders is Bearish Imbalance 17, which has yet to be filled.