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05.10.2026 06:51 PM
The EUR/USD pair has been declining for 18 consecutive days, apart from several brief pauses. During this period, the euro has lost 470 points. The decline in the European currency began a month ago as the market started pricing in an FOMC interest-rate hike. Since then, the market has continued to buy the US dollar, using virtually any short-term factor as justification. In market terminology, such movements are referred to as "order flow," meaning the flow of orders. Typically, large market participants build up an order flow over a certain period, after which those orders begin to be executed. At that point, the accompanying fundamental backdrop becomes much less important. The orders have already been placed and are being executed. As a result, the charts show an uninterrupted move in one direction without any indication of a corrective retracement. Last week, protests broke out in France over cuts in government spending on education. Hundreds of schools have been closed, while clashes with police, vehicle fires, and damage to stores have been reported on an ongoing basis. On Monday, it became known that France faces a budget shortfall of several tens of billions of euros that needs to be covered. This would clearly require higher taxes and spending cuts. In addition, French government bond yields are rising, as are yields in many other EU countries and in the United States. This is placing additional pressure on an already strained budget.
Nothing is currently able to stop the euro's decline. Neither tighter ECB policy, nor favorable economic data from the European Union, nor weak US labor-market data, nor the technical picture and bullish patterns have been sufficient to reverse the move. Since imbalance 19 has been invalidated, the European currency now has a strong possibility of falling below the psychological level of $1.10. Bullish imbalance 19 has turned into a bearish inverted imbalance and generated a sell signal. Bullish traders were unable to capitalize on bullish imbalance 19, the two bullish swings, or the weak US labor-market data. Nothing is likely to support the euro if traders simply continue to refrain from selling the US dollar.
Last week, the FOMC indicated its readiness to continue tightening monetary policy, which was sufficient for the broader bearish move to continue. Even after the Fed tightened monetary policy in September and potentially tightens it again in October or December, I do not believe that the euro has lacked reasons to rise during this period.
Overall, in my view, the fundamental backdrop continues to favor bullish traders. Despite the Fed's more restrictive monetary policy stance, this is not the only factor determining exchange rates. I would remind you that US Treasury yields are reaching record levels, placing significant pressure on the federal budget; the US economy has slowed in recent quarters; the US labor market has produced disappointing data more often than positive surprises; Donald Trump resumed trade and non-trade disputes with numerous countries in 2026; and the US stock market continues to raise significant concerns because of uncontrolled credit-financed investment in technology companies involved in AI development.
The current technical picture indicates that bearish momentum remains intact. Last week ended with the formation of a new bearish imbalance 24, which could provide traders with a new sell signal as early as this week. Bullish traders can now rely only on the next nearest swing at 1.1066 and a liquidity sweep of that level.
The economic backdrop was not needed on Monday. The US ISM services business activity index was released only in the evening, by which time the European currency had already declined by 90 points. The start of the conflict in Yemen and the budget crisis in France were sufficient to drive the move.
There are still numerous reasons for bullish traders to act in 2026. Structurally and globally, Trump's policies, which led to a significant decline in the dollar last year, have not changed. At present, I do not see significant fundamental support for the US currency despite the FOMC's hawkish stance. Geopolitical factors, which supported demand for the US currency during most of the first half of 2026, are no longer having the same effect.
The October 6 economic calendar contains two releases, neither of which I would consider important. The economic backdrop is unlikely to have a significant impact on market sentiment on Tuesday.
In my view, the pair remains in the process of forming a bullish trend that has taken a year-long corrective pause. The fundamental backdrop shifted sharply in favor of bearish traders seven months ago, but the four-year trend itself cannot be considered canceled or complete. In the long term, I would describe the pair as trading within a range. A range does not invalidate the broader bullish trend. Therefore, bullish traders may resume the upward move in 2026, but at present their only meaningful opportunity is the 1.1066 low established in June last year, where a liquidity sweep could occur. Bearish traders received a new sell signal at imbalance 19 and could receive another signal at imbalance 24 this week. Even weak Nonfarm Payrolls data and the sharp increase in inflation in the European Union have failed to support the euro.
