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On Wednesday, the EUR/USD pair reversed in favor of the European currency and experienced a strong rise to the corrective level of 61.8% (1.0837). There was no rebound from this level, but a reversal in favor of the dollar occurred after the Fed meeting. Currently, the market is in an excited state due to the abundance of news and information. Today, we may observe rather nervous movements with false signals.
The wave situation remains clear. The last completed upward wave broke the peak of the previous wave, and the new downward wave broke the low of the last wave from May 30. Thus, we have an obvious sign of a trend change from "bullish" to "bearish." Yesterday, we saw a corrective upward wave, so I expect a new downward wave to form in the near future. Everything indicates that we are at the beginning of a strong "bearish" trend.
The news background on Wednesday was very important for the US dollar, but the market, in its overly excited state, did not react as expected. For instance, the US Consumer Price Index slowed down too weakly but stronger than traders expected. Market participants began to massively sell the dollar, although there was no need for this – inflation was still too high for the Fed to start lowering the interest rate. Core inflation also slowed down too weakly and does not provide a basis for expecting monetary policy easing this summer or even in the fall. In the evening, it became known that Jerome Powell also does not expect a rate cut and considers the current inflation to be "high." He undoubtedly noted the last two inflation reports, which showed a slowdown, but there was little to highlight. The Consumer Price Index slowed by only 0.2% year-on-year over two months. Thus, yesterday's dollar decline was too strong, and the subsequent growth was too weak. The market is nervous and making incorrect decisions.
On the 4-hour chart, the pair reversed in favor of the euro and consolidated above the 50.0% Fibonacci level at 1.0794. Therefore, the growth process may continue for some time towards the corrective level of 38.2% (1.0876). A rebound from this level or consolidation below 1.0794 will favor the US dollar and a resumption of the decline towards the corrective level of 61.8% (1.0714). Consolidation below the descending trend line makes a fall in the pair more likely. A "bearish" divergence is brewing according to the CCI indicator.
In the last reporting week, speculators opened 4,301 long contracts and closed 5,997 short contracts. The sentiment of the "Non-commercial" group turned "bearish" a few weeks ago, but now the bulls have regained and are increasing their advantage. The total number of long contracts held by speculators is now 189,000, and short contracts are 121,000. The gap is widening again in favor of the bulls.
However, I still believe the situation will continue to shift in favor of the bears. I see no long-term reasons to buy the euro, as the ECB has begun easing monetary policy, which will lower the yields on bank deposits and government bonds. In the US, they will remain high for several more months at least, making the dollar more attractive to investors.
Eurozone – Industrial Production (09:00 UTC).
USA – Producer Price Index (12:30 UTC).
USA – Initial Jobless Claims (12:30 UTC).
On June 13, the economic events calendar contains three entries, none of which are significant. The impact of the news background on trader sentiment today will be very weak.
Selling the pair is possible if it closes below the support zone of 1.0785–1.0797 with targets of 1.0748 and 1.0692. Buying the euro was possible with a close on the hourly chart above the level of 1.0748 with a target zone of 1.0785–1.0797. This zone has been reached, as well as the next level. New buys can be considered on a rebound from the zone of 1.0785–1.0797.
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