5M chart of EUR/USD

On Monday, EUR/USD traded in a tight range. It spent the entire day between the critical Kijun-sen line and the level of 1.0806, with volatility less than 40 pips. Naturally, under such conditions, it was extremely difficult to expect strong and profitable signals. However, I already warned you that Monday could be a boring day. In the chart above, it may seem that the pair settled below the level of 1.0806 twice, suggesting that two short positions should have been opened. However, that is not the case. Firstly, the 1.0806 level should have been considered in conjunction with the critical line. The potential stop-loss level would have been very high, as the stop-loss would have to be placed above the Kijun-sen. Moreover, volatility was very low. Secondly, each time the price settled below the level of 1.0806, it only amounted to at most 6 pips, which is very insignificant to declare a signal.

Therefore, it was better not to open any positions based on our recommendations. There was no significant macroeconomic news either in the United States or in the European Union. There were a few speeches by Federal Reserve representatives, but as evident from the market reaction, they did not mention anything important. James Bullard reiterated the need for interest rate hikes, but he does not have voting rights this year.

COT report:

The COT report for May 16 was delivered on Friday. Over the past 9 months, COT data has been in line with developments in the market. The net position (second indicator) has been on the rise since September 2022. The euro started to show strength approximately at the same time. Currently, the net non-commercial position is bullish and keeps growing further. Likewise, the euro is bullish.

Notably, we may assume by the extremely bullish net position that the uptrend may soon stop. The first indicator shows that, and the red and green lines are far away from each other, which is usually a sign that the end of the trend might be nearing. The euro attempted to go down several months ago, but those were just minor pullbacks. In the reporting week, long positions of non-commercial traders decreased by 1,600 and short positions dropped by 9,600. The net position rose by 8,000. The number of long positions exceeds that of short ones by 187,000, a rather big gap. A correction is still impending. So, it is clear that the pair may soon go down even without COT reports.

1H chart of EUR/USD

In the 1-hour time frame, the pair is moving down. The move is supported by the trendline. The greenback will likely keep strengthening against the euro because it is still oversold. All technical indicators signal a downtrend. Consolidation above the trendline and critical line may signal an uptrend. However, we still expect a fall in the medium term.

On May 23, trading levels are seen at 1.0581, 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0943, 1.1092, 1.1137-1.1185, as well as the Senkou Span B line (1.0931) and the Kijun-sen line (1.0817). Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance although no signals are made near these levels. Signals could be made when the price either breaks or bounces from these extreme levels. Do not forget to place Stop Loss at the breakeven point when the price goes by 15 pips in the right direction. In case of a false breakout, it could save you from possible losses.

Today, the European Union, Germany, and the United States will publish PMIs for the services and manufacturing sectors. These are not that important, but as they are preliminary estimates, we can still expect some surprises. You should pay attention to the manufacturing sectors, as they remain below the 50 level in Europe. There are no other important events scheduled for Tuesday. In the US, Fed official Lorie Logan will speak. The market will unlikely react to that speech.

Indicators on charts:

Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals.

Kijun-sen and Senkou Span B are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines.

Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals.

Yellow lines are trend lines, trend channels, and other technical patterns.

Indicator 1 on the COT chart is the size of the net position of each trader category.

Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.