After Friday's sharp surge (+160 pips), the EUR/USD pair corrected on Monday, attempting to consolidate in the 1.16 area again. On Friday, Fed Chair Jerome Powell put substantial "instant" pressure on the U.S. dollar, but by Monday, the initial emotions had faded, allowing EUR/USD sellers to seize the initiative. Still, it is too early to speak of a steady decline: bears did not allow bulls to approach the 1.18 area, but overall, the situation remains uncertain. The current southern impulse should therefore be viewed strictly as a correction, especially since sellers have not managed to break even the intermediate support at 1.1680, which corresponds to the upper boundary of the Kumo cloud on the H4 chart.

In addition to the greenback's correction, EUR/USD was showing downward momentum on Monday for another reason. Traders interpreted Germany's IFO indices as negative for the euro (or at least ambiguous). In my view, the release was clearly in favor of the single currency, but the fact remains.

The German IFO Business Climate Index came out in the "green zone," rising in August to 89.0 (forecast 88.7). This is the highest reading since May 2024, with the indicator rising steadily for the past eight months. The Expectations Index also rose sharply to 91.6, marking a two-year high (since April 2023).

However, the Current Situation Index slightly worsened: instead of the forecasted 86.7, it rose only to 86.4 (after 86.5 in July).

Overall, the release points to stronger business confidence in the months ahead. Yet the decline in the Current Situation Index indicates that actual conditions for companies remain fragile. An IFO representative commented that German economic activity is recovering slowly — "sprouting" optimism is not yet backed by solid macro data.

This report, which overall leaned in favor of the euro, did not help EUR/USD buyers. One reason was pessimistic remarks from German Chancellor Friedrich Merz. Speaking at a CDU party conference, he said Germany can no longer finance the "current welfare state." In his words, the country's modern social model "is no longer financially sustainable." Merz noted that benefits spending this year exceeded last year's record (47 billion euros), and unless the system is reformed, the amount will only rise amid an aging population and higher unemployment.

Such gloomy comments from the German chancellor added background pressure on the euro, including on EUR/USD. The IFO indices could not offset this, particularly since the report contained a "flaw" (the Current Situation Index), which the market focused on.

But can the southern impulse in EUR/USD be trusted? In my opinion, no. The fate of the trend will be decided not by the euro, but by the dollar. The vector of price movement will be defined by key macroeconomic releases this week. Either buyers will once again attempt to reach the 1.18 area, or sellers will drag the pair back into the 1.1600–1.1650 range.

Three reports are in focus:

1. U.S. Consumer Confidence Index (Conference Board) – to be published tomorrow, August 26. Forecasts suggest a slight decline (to 96.3) after an unexpected rise last month (97.2).
2. Second estimate of U.S. Q2 GDP growth – due Thursday. The initial estimate showed 3.0% growth, mainly due to a sharp 30% drop in imports. Most analysts expect the second estimate to match the first. But even a minor downward revision would put heavy pressure on the greenback.
3. Core PCE Price Index (July) – to be released Friday, August 29. Forecasts see the index unchanged at 2.8% (the same level as in June and May).

Trading strategies for EUR/USD will rest on these "three pillars." If the releases come out in the "red zone" (especially Core PCE), the market will again talk about the Fed cutting rates twice before year-end. If the data surprises to the upside, the pair will come under significant pressure.

For now, long positions remain in priority. Bears' inability to decisively break support at 1.1680 (upper boundary of the Kumo cloud on H4) suggests the current decline is still corrective. The technical picture confirms this: on H4, the pair trades above all Ichimoku lines and between the middle and upper Bollinger Bands. The daily chart shows a similar setup (with Ichimoku forming a bullish "Parade of Lines" signal). Still, for reliability, observe price behavior around the 1.1680 support. If the southern impulse fades there, buyers will likely attempt a rebound with the first target at 1.1740 (upper Bollinger Band on H4).