Analysis of EUR/USD 5M

EURUSD was in recovery mode on Wednesday. A few days ago, the euro corrected higher, but it was quite short-lived, so we assumed there would be another round of correction. So far, everything is going exactly in that direction. We have been saying that the macroeconomic background supports the dollar more than the euro. But yesterday, this was not the case. From the very morning, the euro traded higher due to the final Services PMI of Germany, and shortly after that, the Eurozone Services PMI also marked a small rise. A little later, there were some weak reports in the EU, but they did not prevent the corrective rise. In the second half of the day, the US ADP report, which is an independent measure and high-frequency view of the private-sector labor market, missed the mark, but the ISM Services PMI met expectations. The dollar gained a slight advantage in the short term, but we are still in favor of extending the bullish correction.

Three trading signals were formed yesterday. The first buy signal around the level of 1.0485 brought about 25 pips of profit, as the pair reached the nearest target level of 1.0533, and a sell signal was formed near the critical line, which should have been executed. The price returned back to 1.0485, so traders could get another 25 pips of profit. The last buy signal near 1.0485 could also be executed, and it yielded an additional 15-20 pips of profit. The movements were a bit chaotic, but it was still possible to make a profit.

COT report:

On Friday, a new COT report for September 26th was released. Over the past 12 months, the COT report data has been consistent with what's happening in the market. The net position of large traders (the second indicator) began to rise back in September 2022, roughly at the same time that the European currency started to rise. In the first half of 2023, the net position hardly increased, but the euro remained relatively high during this period. Only in the last two months, we have seen a decline in the euro and a drop in the net position, which we've been waiting for a long time. Currently, the net position of non-commercial traders is still bullish and this trend is likely to lose momentum soon.

We have previously noted that the red and green lines have moved significantly apart from each other, which often precedes the end of a trend. This configuration persisted for over half a year, but eventually, the situation began to change. Therefore, we still stick to the scenario that the upward trend is over. During the last reporting week, the number of long positions for the "Non-commercial" group increased by 4,000, while the number of short positions increased by 7,600. Consequently, the net position decreased by 3,600 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 99,000, but the gap is narrowing, which is a positive sign. In principle, it is now evident even without COT reports that the European currency is set to extend its weakness. Now the COT reports support this scenario.

Analysis of EUR/USD 1H

On the 1-hour chart, the pair ended the bullish correction, broke through the last local low, but it may start a new corrective phase. We believe that the dollar will continue to advance in the medium term, but we were expecting the pair to rise further in the near future. In order to do so, the pair should overcome the Kijun-sen line today, and then the target will be the Senkou Span B line.

On October 5th, we highlight the following levels for trading: 1.0269, 1.0340-1.0366, 1,0485, 1.0537, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, as well as the Senkou Span B (1.0613) and Kijun-sen (1.0533) lines. The Ichimoku indicator lines can shift during the day, so this should be taken into account when identifying trading signals. There are also auxiliary support and resistance levels, but signals are not formed near them. Signals can be "bounces" and "breakouts" of extreme levels and lines. Don't forget to set a breakeven Stop Loss if the price has moved in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.

On Thursday, there are no interesting reports or events lined up in the European Union, except for another round of speeches by European Central Bank representatives. The US will release a standard report on jobless claims and several Federal Reserve officials will speak. In general, there is practically nothing of interest.

Description of the chart:

Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;

The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;

Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals;

Yellow lines are trend lines, trend channels, and any other technical patterns;

Indicator 1 on the COT charts is the net position size for each category of traders;

Indicator 2 on the COT charts is the net position size for the Non-commercial group.