EUR/USD Analysis: Euro Tests Critical Fibonacci Support at 1.1666

Technical Analysis and Support Levels

The EUR/USD pair maintained its downward trajectory on Thursday, moving closer to the 38.2% Fibonacci retracement level at 1.1666. This movement followed a period of consolidation below the 50.0% level at 1.1745. The market is now focused on whether the pair will rebound from 1.1666, which could signal a reversal toward 1.1745, or consolidate below it, potentially extending the decline toward 1.1568.

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On the hourly chart, the technical wave structure remains largely bullish despite the recent pullback. The most recent upward wave successfully breached six previous peaks, while the current downward correction has yet to challenge the early April lows. Geopolitical factors, particularly the temporary easing of tensions between Iran and the United States, have historically supported the bulls, though renewed uncertainty could quickly shift momentum in favor of the bears.

On the 4-hour chart, the pair successfully reversed from the 1.1849 resistance and is now trading below the 61.8% Fibonacci level at 1.1706. This positioning increases the probability of a move toward the 76.4% retracement level at 1.1617. Indicators currently show no clear bullish or bearish divergences, suggesting that the prevailing trend is dictated by key horizontal levels.

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Macroeconomic Drivers and Sentiment

Recent economic data for the Eurozone presented a mixed picture that failed to ignite significant market volatility. The services sector, previously the primary driver of EU growth, saw its PMI indices drop to 46.9 in Germany and 47.4 for the Eurozone. While manufacturing figures remained relatively stable at 51.2 and 52.2 respectively, traders reacted with indifference to the package, as well as to subsequent U.S. labor market reports.

The latest Commitments of Traders (COT) report reveals a shift in market sentiment as the bullish advantage narrows. Professional speculators now hold 214,000 long positions against 188,000 short positions, showing a significant reduction in the long-to-short ratio compared to two months ago. While large players retain a general interest in the euro, global geopolitical developments continue to weigh heavily on investor confidence.

Outlook and Trading Strategy

Market attention is currently pivoting away from traditional monetary policy toward the geopolitical situation in the Middle East. The ongoing pause in regional conflict remains fragile, and the U.S. dollar stands to benefit from its safe-haven status if tensions escalate. In the immediate term, the euro's performance will likely depend more on these external developments than on local economic indices.

For the remainder of the session, the economic calendar features Germany’s Business Climate Index and the U.S. Consumer Sentiment Index from the University of Michigan. Neither release is expected to deviate significantly from current market expectations, likely resulting in continued low volatility. Technical traders should monitor the 1.1666 level closely for either a bounce or a breakout to determine short-term direction.

In terms of trading strategy, selling opportunities are most viable on a confirmed close below 1.1666, with a target of 1.1568. Conversely, buying positions may be considered if a clear rebound from 1.1666 occurs, targeting the resistance at 1.1745. Overall activity remains subdued as the market awaits a decisive catalyst for the next major move.

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