The EUR/USD pair declined by 150 points last week and has fallen by another 130 points so far this week. What caused such a strong bearish offensive that finally came to an end on Friday? Let me remind you that there is currently no threat of renewed war in the Middle East, although Donald Trump periodically threatens new strikes against Iran if a nuclear agreement is not signed within the next 60 days.
Although the Federal Reserve adopted a more hawkish tone at its June meeting, the U.S. dollar strengthened throughout the entire week, which I consider either an excessive market reaction or a move unrelated to the FOMC meeting. The ECB's stance at its latest meeting could hardly be described as dovish enough to justify a week-long decline in the euro. Negotiations between Tehran and Washington have begun, and both sides have two months to resolve the nuclear deadlock. The very fact that a temporary ceasefire agreement was signed last week is already a positive signal. Therefore, in my view, there were simply no sufficient grounds for such a strong rally in the U.S. dollar.
However, the market occasionally experiences moves that are extremely difficult to explain. Over the past week, we witnessed exactly such a move. And it may not be over if the price reacts to bearish imbalance 18—or even bearish imbalance 17. Nevertheless, few would deny that a correction had been overdue for several days.
Last week, geopolitics finally moved into the background. Tehran and Washington signed a memorandum of understanding, extended the ceasefire for 60 days, and began work on reopening the Strait of Hormuz. Nuclear negotiations began last Sunday in Switzerland. We did not see the anticipated decline in the dollar amid easing geopolitical tensions. Nor did we see the euro strengthen following the ECB's tighter monetary stance. Quite the opposite. The bears remained on the offensive throughout the entire week despite the prevailing news flow and geopolitical backdrop. In such circumstances, it is necessary to wait for the bearish advance to run its course—or at least for sell signals to emerge.
The current technical picture indicates that the bearish impulse that began on April 17 remains intact. Bearish imbalance 17 has not yet been mitigated and has not generated a sell signal. This week, another bearish imbalance—number 18—was formed, which may trigger a price reaction as early as today or tomorrow. Only if imbalance 18 is invalidated will the bulls be able to launch a counteroffensive, and I would once again expect the euro to resume its growth, which, in my opinion, would be a more logical development given everything that has happened in 2026. Until then, there are no grounds to expect a strong rally in the euro.
Friday's economic data could theoretically have forced the bears to retreat, but I do not believe the consumer sentiment index, released only two hours ago, was the primary reason for the decline that had already begun earlier in the day. Consumer sentiment deteriorated slightly in June, but compared with May it still increased by nearly five points, which is a significant improvement. Thus, the index was weak only relative to traders' expectations.
The bulls still have plenty of reasons to remain active in 2026, and the situation in the Middle East has not reduced their number. Structurally and globally, Trump's policies, which contributed to a substantial decline in the U.S. dollar last year, have not changed. At present, I do not see any major supportive factors for the U.S. currency despite the hawkish tone of the FOMC. The EUR/USD pair has approached a series of lows and swing points from which liquidity may be taken, potentially serving as a signal for a reversal of the current bearish impulse.
News Calendar for the United States and the Eurozone:
- Eurozone – ECB President Christine Lagarde Speaks (17:30 UTC).
June 29: The economic calendar contains only one event. Therefore, the impact of the economic backdrop on market sentiment on Monday may be limited.
EUR/USD Forecast and Trading Tips:
In my view, the pair remains in the process of forming a bullish trend. The news backdrop shifted sharply in favor of the bears four months ago, but the broader trend cannot yet be considered canceled or completed. Therefore, the bulls may well launch a new advance after liquidity is taken from clearly defined lows. However, opening long positions at the current stage is not advisable. First, the bearish impulse needs to be completed and bullish patterns must emerge.
At present, traders have two bearish imbalances available from which short positions can be considered. However, I would like to draw attention to the proximity of four significant swing points from which liquidity may be taken, as well as to the rather questionable fundamental basis behind the recent strength of the U.S. dollar. Therefore, I continue to expect a bullish advance, but it is important to obtain at least some technical confirmation. Alternatively, traders should wait for new sell signals to form.
