Analysis of EUR/USD 5M

The EUR/USD currency pair continued its downward movement on Wednesday, ending the day around the 1.0935 level. At the moment, the technical picture suggests that the initial bearish momentum may have ended. After all, the dollar has been rising almost without pullbacks for two consecutive weeks. It might be time for a correction. In the medium term, we continue to expect only growth for the US dollar, as we consider the current exchange rate of the pair to be unjustified. The euro had been rising for a long time (two years) because the market completely ignored all the Eurozone's negative factors and the most positive ones from the US. Now, the time for rebalancing has come. We see that the dollar is now rising almost without visible reasons. There have been no significant events this week.

Yesterday's FOMC minutes did not provide any fundamentally new information to the market. It merely confirmed that most FOMC members supported a 0.5% rate cut but were still determining whether this pace of easing would continue at upcoming meetings. And this was the only event of the day. Thus, the key point remains the same—the Federal Reserve will continue easing its monetary policy, but the market has already wholly or almost entirely priced in this factor.

No trading signals were formed during yesterday's session. The price approached the 1.0935 level only by the end of the day, seemingly reversing around it. Therefore, small buy positions with a Stop Loss below 1.0935 may be relevant. However, the trend has likely shifted to a downward one.

COT Report:

The latest COT report is dated October 1. The above illustration clearly shows that the net position of non-commercial traders has long remained bullish. The bears' attempt to gain dominance failed spectacularly. The net position of non-commercial traders (red line) decreased in the second half of 2023 and early 2024, while commercial traders (blue line) increased. Currently, professional players are building up long positions again.

We still do not see any fundamental factors supporting the strengthening of the euro, and technical analysis indicates that the price is in a consolidation zone—in simpler terms, in a flat range. On the weekly time frame, it is clear that since December 2022, the pair has been trading between 1.0448 and 1.1274. This means we have transitioned from a seven-month flat range to an 18-month one.

Currently, the red and blue lines are moving further apart, indicating an increase in long positions on the euro. However, such changes cannot serve as a basis for long-term conclusions within the flat range. During the last reporting week, the number of longs for the non-commercial group decreased by 9,500, while the number of shorts increased by 6,800. As a result, the net position fell by 16,300. The euro still has significant potential for further decline.

Analysis of EUR/USD 1H

In the hourly time frame, the pair still has a realistic chance of ending its two-year-long unjustified upward trend. There is no point in discussing the fundamental and macroeconomic reasons for a potential new decline in the dollar—there simply aren't any. Technical analysis has also turned in favor of a downward movement. Of course, the two-year uptrend could continue for some time due to momentum, but we expect nothing other than a decline in the medium term.

For October 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, 1.1147, 1.1185, 1.1234, 1.1274, as well as the Senkou Span B line (1.1111) and the Kijun-sen line (1.0988). The lines of the Ichimoku indicator may shift throughout the day, which should be considered when determining trading signals. Remember to set a Stop Loss at break even if the price moves 15 points in the intended direction. This will protect against potential losses if the signal turns out to be false.

On Thursday, there will again be very few macroeconomic events. However, the week's key report—US inflation—will be published today. We do not expect this report (regardless of its value) to change market sentiment, as it seems the market is already set on buying the dollar in the medium term. However, this report could assist with a correction that has been anticipated in recent days.

Explanation of Illustrations:

Support and Resistance Levels: Thick red lines near which price movement may end. They are not sources of trading signals.

Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred to the hourly time frame from the 4-hour chart. They are strong lines.

Extremes Levels: Thin red lines from which the price has previously bounced. They serve as sources of trading signals.

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

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