On Tuesday, EUR/USD reversed in favor of the U.S. dollar and saw a sharp decline, closing below the support zone at 1.1637–1.1645. Thus, the downward move may continue today toward the next 50.0% retracement level at 1.1590, from which the pair has already rebounded twice before. Around this level, the dollar's growth could come to an end. A consolidation of the pair above 1.1637–1.1645 would favor the euro and some growth toward the 76.4% retracement level at 1.1695.

The wave structure on the hourly chart remains simple and clear. The last completed upward wave did not break above the previous peaks, while the last downward wave broke the previous low by only a few pips. Thus, the trend could again turn bullish at this stage, though the probability of continued sideways trading remains high. The latest labor market data and shifting Fed monetary policy expectations are supporting the bulls.

On Tuesday, the eurozone published an important inflation report that significantly improves the outlook for the euro. Inflation in the EU rose to 2.1% y/y, which is likely to limit the ECB's scope for further easing. The risk of renewed consumer price growth remains. For example, in the UK, inflation has been steadily rising for a year. Thus, the ECB is likely to pause in the coming months, while the Fed, at the same time, is expected to begin cutting rates. This makes the news background less attractive for the dollar. This week, the Nonfarm Payrolls report could provide support for the dollar, but the figure for August would need to be strong enough for the market to believe in extending the FOMC's pause on easing. Under the current circumstances, I do not expect EUR/USD to fall below 1.1590.

On the 4-hour chart, the pair completed another reversal in favor of the euro and consolidated above 1.1680. This level has been crossed by price many times recently, so I advise not to focus too much on it. A sideways channel is also clearly visible, with traders unable to break out for several weeks now. Thus, the market remains in consolidation. The CCI indicator is forming a bullish divergence, warning of possible growth in the near term. A consolidation above or below the sideways channel will signal a resumption of trending movement.

Commitments of Traders (COT) Report:

During the last reporting week, professional traders opened 5,667 long positions and 1,373 short positions. The sentiment of the "Non-commercial" group remains bullish, supported by Donald Trump's policies, and is strengthening over time. The total number of long positions held by speculators is now 258,000, compared to 135,000 short positions—a nearly twofold gap. Also, note the number of green cells in the table above, which reflect strong position-building in the euro. In most cases, interest in the euro continues to grow, while interest in the dollar declines.

For 29 consecutive weeks, large players have been reducing short positions and building longs. Donald Trump's policies remain the most significant factor for traders, as they may create numerous long-term, structural problems for the U.S. Despite several important trade agreements being signed, some key economic indicators are showing declines.

News calendar for the U.S. and the EU:

Eurozone – Speech by ECB President Christine Lagarde (07:30 UTC). U.S. – JOLTS Job Openings (14:00 UTC).

On September 3, the economic calendar contains two entries, both important. The news background may influence market sentiment on Wednesday both in the morning and in the afternoon.

EUR/USD Forecast and Trader Tips:

Selling the pair was possible on a close below 1.1695 on the hourly chart, targeting 1.1637–1.1645. That target has been reached. Today, buying the pair will be possible on a rebound from 1.1590 or on a close above 1.1637–1.1645, targeting 1.1695.

Fibonacci grids are built from 1.1789–1.1392 on the hourly chart and from 1.1214–1.0179 on the 4-hour chart.