Analysis of EUR/USD 5M

EUR/USD started the week under bearish pressure. As it often happens, trading became more active during the U.S. trading session, while the European session nearly saw a flat. Nevertheless, by the end of the day, the euro lost about 70-80 pips, which is quite significant, considering that there were no important events throughout the day, and the market was still starting to buy the dollar. For several weeks, we have been expecting the pair to start a stable downward movement, as we believe that the euro has again grown so much that it appears illogical for it to do so. Yes, there was a whole series of weak U.S. reports, but the global fundamental background does not imply the euro's strength. Therefore, we believe that the euro should fall to annual lows, which is slightly above parity.

In fact, only one trading signal was formed yesterday. During the Asian trading session, the price bounced from the level of 1.0889 twice, and at the opening of the European session, it moved away from the point of formation by only a few pips. We anticipated a decline, so a short position should have been opened. Subsequently, the price fell to the level of 1.0806, from which it bounced back with ideal precision. This is when shorts should have been closed. The profit was about 50 pips. It was better not to open longs on the rebound from 1.0806, as this buy signal was formed quite late in the day.

COT report:

The latest COT report is dated November 28. 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 euro started to rise. In the first half of 2023, the net position hardly increased, but the euro remained relatively high during this period. In the last three months, we have seen a decline in the euro and a drop in the net position, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can draw a clear conclusion: the pair is correcting higher, and the corrective phase has not yet ended.

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. Currently, after a small correction, these lines are diverging again. Therefore, we stick to the scenario that the upward trend should come to an end. During the last reporting week, the number of long positions for the "non-commercial" group increased by 2,300, while the number of short positions fell by 11,100. Consequently, the net position increased by 13,400. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 143,000. In principle, it is now evident even without COT reports that the euro should continue to fall. However, the corrective phase has not yet ended.

Analysis of EUR/USD 1H

On the 1-hour chart, the pair has finally started to decline and has even breached the Ichimoku indicator lines. Therefore, the most logical scenario now would be for the pair to drop further. Yesterday's bounce from the level of 1.0806 led to a logical pullback to the upside. Today, bounces from the Ichimoku indicator lines enabled traders to sell the pair again, but we doubt that the price can reach these lines in the current circumstances. Most likely, the pair will fall again without testing them.

On December 5, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0806, 1.0889, 1.0935, 1.1043, 1.1092, 1.1137, as well as the Senkou Span B line (1.0895) and the Kijun-sen line (1.0912) 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 Tuesday, the eurozone, Germany, and the United States will publish the final November S&P Services PMI data. These are secondary data that are unlikely to trigger a strong movement. Traders should focus on the U.S. data – the ISM business activity index in the services sector and the ADP, which is a less significant counterpart to the NonFarm Payrolls report. We expect stronger movement in the second half of the day.

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.