Analysis of EUR/USD 5M

The EUR/USD pair traded quite interestingly on Monday. There was a downward movement almost all day, although there was no macroeconomic or fundamental backdrop. However, the price still failed to fall below the recent local lows. A new descending trend line supported the US dollar's rise. However, we all know that any macroeconomic report from the US can still trigger the dollar's collapse. And this week, a super-important inflation report will be published. How the market will react to it is a big mystery. What actions it will expect from the Federal Reserve on September 18 and until the end of 2024 after this report is an even bigger mystery. We want to say that the dollar can still resume its decline simply because market participants or market makers may continue to work off their inflated and "ultra-dovish" expectations for the Fed's monetary policy.

From a technical perspective, only a downward movement should be expected if the price is below the Ichimoku indicator lines and below the trend line. The price could easily correct to the Kijun-sen line on Tuesday-Wednesday and then resume falling. The market has already 100% priced in the Fed's rate cut in September.

Only one trading signal was formed on Monday. The price bounced off the level of 1.1092 overnight, and the Kijun-sen line then managed to go down about 40 pips. At the opening of the European trading session, the price did not move far from the point of formation, so short positions could be opened. It was impossible to reach the nearest target level of 1.1006, so the trades had to be manually closed in the evening or left open in hopes of working out the target this week.

COT report:

The latest COT report is dated September 3. The illustration above clearly shows that the net position of non-commercial traders has remained bullish for a long time. The bears' attempt to take over failed miserably. The net position of non-commercial traders (red line) declined in the second half of 2023 and the first of 2024, while commercial traders (blue line) grew. Currently, professional players are again increasing their long positions.

We also still do not see any fundamental factors supporting the strengthening of the euro. Technical analysis indicates that the price is in a consolidation phase—in other words, a flat. In the weekly time frame, it is clear that since December 2022, the pair has been trading between levels 1.0448 and 1.1274. In other words, we have moved from a seven-month flat into an 18-month one.

At the moment, the red and blue lines are slightly moving away from each other, which indicates that long positions on the euro are increasing. However, such changes cannot be the basis for long-term conclusions within a flat market. During the last reporting week, the number of long positions in the non-commercial group decreased by 2,400, while the number of short positions fell by 9,600. Accordingly, the net position increased by another 7,200. Yet, there is still potential for the euro to fall.

Analysis of EUR/USD 1H

In the hourly time frame, the EUR/USD pair finally has a real chance to end the baseless upward trend. A new downtrend has been established. With a week and a half until the Fed's meeting, the market could very well resume rampant selling of the US dollar, but at least now, there are technical grounds to expect a drop in the pair. The price is below the Ichimoku indicator line, which opens up some prospects for the US dollar.

For September 10, we highlight the following levels for trading: 1.0658-1.0669, 1.0757, 1.0797, 1.0843, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, 1.1185, 1.1234, 1.1274, as well as the Senkou Span B (1.1122) and Kijun-sen (1.1090) lines. The Ichimoku indicator lines can move during the day, so this should be considered when identifying trading signals. Remember to set a Stop Loss to break even if the price has moved in the intended direction by 15 pips. This will protect you against potential losses if the signal turns out to be false.

On Monday, no significant events or releases are scheduled in the US, and Germany will release the second estimate of August inflation. It is unlikely that the second estimate will differ from the first, so we do not expect a strong market reaction to this report. The pair must remain below the Senkou Span B line if we still want to see a downtrend.

Explanation of illustrations:

Support and resistance levels: Thick red lines near which the trend may end.

Kijun-sen and Senkou Span B lines: These Ichimoku indicator lines, transferred from the 4-hour timeframe to the hourly chart, are strong lines.

Extreme levels: Thin red lines from which the price previously bounced. These provide trading signals.

Yellow lines: Trend lines, trend channels, and other technical patterns.

Indicator 1 on COT charts: The net position size for each category of traders