Analysis of EUR/USD 5M

On Tuesday, the EUR/USD pair sustained a relatively substantial decline, although there were no compelling reasons. Volatility did decrease to about 60 pips, but even 60 pips is quite good for an almost empty day. Among macroeconomic events, we can only highlight the retail sales report in the European Union, which fell by 0.3% in July against forecasts of -0.1%. Thus, it can be said that this report created problems for the euro.

In previous articles, we mentioned that we did not understand all the panic in the market on Friday and Monday. The Nonfarm Payrolls report showed another weak figure, but there is no "sign" of a recession in the American economy. The unemployment rate rose to 4.3%, but isn't that precisely what the Federal Reserve wanted to achieve? Frankly speaking, the market reacts as if the rise in unemployment, cooling of the labor market, and slowdown in business activity are non-obvious things when the central bank has been adhering to a tough hawkish policy for a long time. Meanwhile, the market is not particularly interested in the European Central Bank's rate cut.

Despite the strong fall in dollar demand, the EUR/USD pair remains in a seven-month horizontal channel between the levels of 1.0600 and 1.1000. As the price has rebounded from the upper boundary of this range, it is now possible to expect it to fall to the lower boundary.

All the trading signals on Tuesday formed around the level of 1.0935. First, the price overcame it, then bounced off it from below twice. Traders could have executed the first signal, as the second duplicated it, and the third was formed too late. Unfortunately, the price did not manage to drop to the critical line, but the pair may continue to fall today.

COT report:

The latest COT report is dated July 30. The illustration above shows that the net position of non-commercial traders has been bullish for a long time and remains so at this time. The bears' attempt to move into their zone of dominance failed miserably. The net position of non-commercial traders (red line) has declined in recent months, while that of commercial traders (blue line) has grown. They are roughly equal at this time, suggesting a new attempt by the bears to retake the lead.

We also still do not see any fundamental factors allowing the euro to gain significant momentum, and the technical analysis tells us that the price is in the consolidation zone—in other words, in a flat range. The general downtrend in the euro remains, but the market decided to take a break for six months.

At the moment, the red and blue lines are slightly moving away from each other, which indicates that long positions on the single currency are increasing. However, given the flat conditions, such changes cannot be the basis for long-term conclusions. During the last reporting week, the number of longs in the non-commercial group decreased by 5,900, while the number of shorts increased by 12,100. Accordingly, the net position decreased by 18,000. According to COT reports, the euro still has the potential for decline.

Analysis of EUR/USD 1H

In the hourly time frame, EUR/USD again showed a sharp and strong rise, but, from our perspective, it does not offer "great prospects" for the euro. There was panic in the markets on Friday and Monday, yet the euro remains within the same horizontal channel of 1.0600-1.1000, as it has for the past seven months. We believe there is a high likelihood of a rebound from the 1.1000 level with a further decline down to 1.0600. As it turned out on Tuesday, the Fed does not share the market's panic and is not planning to hold an emergency meeting to lower the key rate.

For August 7, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0843, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B lines (1.0851) and Kijun-sen (1.0894) 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.

No interesting events are scheduled for Wednesday in the US or the European Union. The market seems to have calmed down after Friday and Monday's events, so volatility may now be lower. We believe the euro should sustain its decline, but the price needs to at least consolidate below the Kijun-sen line. New growth prospects will open only above the 10th level.

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