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On Tuesday, the EUR/USD pair reversed in favor of the U.S. dollar and consolidated below the 323.6% corrective level at 1.0532. This suggests that the downtrend could continue toward the next target at 1.0420. Recent market movements have been modest, but the bears have started to gain an edge.
The wave structure is simple and clear. The last completed downward wave did not break the previous low, while the last upward wave barely exceeded the previous peak. This indicates the formation of a "bullish" trend, albeit a very weak one, which could end this week. To break this current bullish trend, the pair needs to drop below the 1.0461 level.
Tuesday's news was minimal, with the only significant report being Germany's final inflation reading for November. No surprises were found: the Consumer Price Index increased by 2.2% y/y, and core inflation remained at 2.4% y/y. These figures do not provide the ECB with any reason to pause or stop its monetary easing policies. Inflation has slightly increased in Germany and other EU countries, but not enough to justify halting rate cuts. Traders corrected the pair slightly upwards over a few weeks, but the 4-hour chart offers a clearer picture. After a prolonged decline, the pair climbed to the 1.0630 level but faced rejection twice at this level. In my view, we are at the beginning of a new downtrend for the euro, which could extend to the 1.0225 level.
On the 4-hour chart, the pair made a second rebound from the 100.0% corrective level at 1.0603, initiating a new downward move toward the 127.2% Fibonacci level at 1.0436. A "bearish" divergence on the CCI indicator also supports the downward momentum. A consolidation above 1.0603 could signal further growth toward the next corrective level at 76.4% (1.0747), but my primary scenario remains bearish.
During the last reporting week, speculators opened 11,359 long positions and 12,839 short positions. The "Non-commercial" group maintains a bearish sentiment, implying further declines for the pair. The total number of long positions held by speculators is now 168,000, while short positions stand at 225,000.
For twelve consecutive weeks, major players have been reducing their euro holdings. In my view, this indicates the start of a new "bearish" trend. The key factor behind the dollar's earlier decline—expectations of FOMC easing—has already been priced in. The market no longer has strong reasons to sell the dollar. While new factors may emerge, the U.S. dollar's growth remains more likely. Graphical analysis also points to the beginning of a long-term bearish trend, leading me to prepare for an extended decline in the EUR/USD pair.
The economic calendar for December 11 includes only one event, but it is a crucial one. The impact of this data on market sentiment could be significant, particularly in the latter half of the day.
Fibonacci levels are constructed between 1.1003 and 1.1214 on the hourly chart and between 1.0603 and 1.1214 on the 4-hour chart.
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