Analysis of EUR/USD 5M

EUR/USD showed mixed movements on Monday, but it was quite logical. Before the release of the ISM Manufacturing PMI in the US, which turned out to be significantly higher than expected, the pair was flat. As expected, the dollar rose after the ISM data. We find it odd that even important reports and events have not provoked a strong dollar rally recently. And yet we saw a fairly strong downward movement on Monday. Nonetheless, such a movement was expected.

The most important thing is that the market reacted to the ISM data as it should have. Once again, US reports showed that the economy is doing fine, and the Federal Reserve can keep the rate at its peak value until the New Year. Therefore, the dollar should continue to strengthen because there is a 90% probability that the European Central Bank will lower the rate earlier than the Fed, and will lower it more significantly in 2024 than the Fed. One can only hope that the succeeding movements will be equally strong because it has become very tiresome to observe the pair's "convulsions" of 30-40 pips every day.

Two trading signals were generated on Monday. The first one appeared overnight, but by the opening of the European trading session, the price remained at the level where the signal was formed, so short positions could be opened. Then, another sell signal was formed around the level of 1.0757. It was advisable to keep the positions. They could have been manually closed in the evening. The profit amounted to about 50 pips. A good start to an important week.

COT report:

The latest COT report is dated March 26. The net position of non-commercial traders has been bullish for quite some time. Basically, the number of long positions in the market is higher than the number of short positions. However, at the same time, the net position of non-commercial traders (red line) has been decreasing in recent months, while that of commercial traders (blue line) has been increasing. This shows that market sentiment is turning bearish, as speculators increasingly sell the euro. Furthermore, we don't see any fundamental factors that can support the euro's strength, while technical analysis also suggests a downtrend. Three descending trend lines on the weekly chart indicate that there's a good chance of extending the decline.

At present, the red and blue lines are moving towards each other (indicating a trend reversal after a rise). Therefore, we believe that the euro will fall further. During the last reporting week, the number of long positions for the non-commercial group decreased by 2,200, while the number of short positions increased by 15,000. Accordingly, the net position decreased by 17,200. The number of buy contracts is higher than the number of sell contracts among non-commercial traders by only 31,000 (previously 48,000).

Analysis of EUR/USD 1H

On the 1-hour chart, EUR/USD continues the downtrend, which should pull down the pair. The price is below the Ichimoku indicator lines, which gives us reason to expect further downward movement. The descending trendline also supports sellers. The dollar should still rise in almost any case, as the general fundamental background is on its side. Volatility slightly increased on Monday, but only due to the US ISM report.

On April 2, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0836, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0872) and Kijun-sen (1.0800) lines. The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a Stop Loss to breakeven 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 Tuesday, final assessments of Services PMIs for Germany and the euro area will be published. These are secondary data. In addition, the inflation rate for Germany in March will be released, which is quite interesting, especially since forecasts show a slowdown to 2.2%. The US JOLTs figures will be in focus as it could also provoke a market reaction.

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;