The EUR/USD pair reversed in favor of the US dollar, fully broke through bullish imbalance 14, and reached imbalance 13. Honestly, the euro's decline last week is concerning. It cannot be called unfounded, but it started rather unexpectedly. I do not dispute that the failure of negotiations between Iran and the US is a strong reason to return to the dollar. However, this is not the first time Tehran and Washington have failed to reach an agreement. Therefore, I believe the euro's decline is linked to a reduction in optimism regarding the Middle East conflict. The key question now is whether the current level of pessimism will be confirmed. At the moment, the market is not fully convinced of a renewed war, but it is seriously considering this scenario.
Just as traders a week earlier received no confirmation of a US-Iran deal, they may now also receive no confirmation of renewed conflict. As a result, the euro may recover from the difficult situation it found itself in last week without major damage. Imbalance 13 is not only a bullish pattern in a bullish trend—it is also a support zone. Bulls have retreated, but they have not surrendered.
At present, traders are left waiting for a reaction at imbalance 13, which is the last bullish pattern within the current bullish impulse, or for its invalidation. If the decline is treated as a corrective pullback, it may well end within imbalance 13. As a reminder, patterns alone do not provide entry signals. Signals must form on lower timeframes—for example, structural breaks or bullish patterns. In other words, reversal confirmation is required. If there is none, then there is no signal. Thus, I am currently waiting for a reaction at imbalance 13. The euro's rise on Monday offers hope for a renewed bullish impulse.
I cannot help but note once again that the entire rise of the US dollar from January to March was driven solely by geopolitics. As soon as the US and Iran agreed on a ceasefire, bears immediately retreated, and for more than a month the market was dominated by bulls. At present, the ceasefire is hanging by a thread, but negotiations have not fully collapsed, and the chances of peace remain. I have repeatedly said that I do not believe in the end of the bullish trend, despite the breakdown of important trend-defining lows and despite the war in Iran. The market often prices in the most pessimistic scenario in advance, attempting to anticipate the most extreme outcome. Therefore, I assume that traders have already fully priced in the Middle East geopolitical conflict. I do not expect a strong bearish advance.
The overall technical picture is very clear. The bullish structure remains intact but urgently requires support—ideally geopolitical support, such as renewed US-Iran negotiations and mutual concessions. Without a positive news backdrop, the euro will struggle to sustain further growth.
The economic background on Monday was absent; bears paused their attacks, and bulls slightly improved their position. This week there will be few important economic events, so geopolitics will be even more important.
There are still many reasons for bulls to remain active in 2026, and even the outbreak of war in the Middle East has not reduced them. Structurally and fundamentally, the policy of Donald Trump, which led to a significant decline in the dollar last year, has not changed. In the coming months, the US currency may occasionally strengthen due to risk aversion, but this requires continuous escalation of the Middle East conflict. I still do not believe in a bearish trend. The dollar has received temporary support, but what would sustain long-term bearish momentum?
Economic calendar for the US and EU:
- US – ADP employment change (weekly) (12:15 UTC).
On May 19, the economic calendar contains only one minor data release. Therefore, the economic background will have no impact on market sentiment on Tuesday.
EUR/USD forecast and trading recommendations:
In my view, the pair remains in the process of forming a bullish trend. The news background changed sharply three months ago, but the trend cannot yet be considered invalidated or finished. Therefore, bulls may soon resume their advance if geopolitics does not continue to undermine traders' confidence in a positive resolution of the conflict.
Traders had opportunities to buy on signals from imbalance 12 as well as from the order block. The upward movement may continue up to the yearly highs from imbalance 13. However, in the coming days it is important that bulls maintain initiative in the market. For uninterrupted euro growth, the Middle East conflict must move toward sustainable peace, and some signs of de-escalation appear from time to time, although still rarely. Bulls currently lack sufficient support for a new impulse. The buy level is 1.1605–1.1649.
