Analysis of EUR/USD 5M
EUR/USD showed positive trades on Thursday, which we anticipated. Over the past few days, the situation has been quite ambiguous because, on the one hand, the pair was expected to correct higher, but on the other hand, the market was pushing EUR/USD down. The macroeconomic and fundamental background was weak, and it had no influence on the pair. However, last night, Federal Reserve Chairman Jerome Powell suggested that more interest rate hikes are still possible if the economy stays surprisingly hot. Earlier, at least five members of the monetary committee had stated that they saw no need for rate hikes. The most interesting part is that the dollar weakened on Powell's hawkish rhetoric. Nevertheless, the main thing is that EUR/USD is correcting higher. Now we can expect the pair to rise to 1.0640 (the previous high).
Speaking of trading signals, yesterday's situation was quite good. During the European session, the pair rebounded from the area of 1.0533-1.0546, afterwards it managed to rise to the level of 1.0581. The profit on long positions amounted to 20 pips. The rebound from the level of 1.0581 could also be used to open short positions. Before Powell's speech, it was better to either close all positions or set a breakeven to Stop Loss. Therefore, when the "storm" began, traders were already out of harm's way.
COT report:
On Friday, a new COT report for October 10th was released. 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. Only in the last two months, we have seen a decline in the euro and a drop in the net position, which we've been waiting for a long time. Currently, the net position of non-commercial traders is still bullish and this trend is likely to lose momentum soon.
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. This configuration persisted for over half a year, but ultimately, the lines have started moving closer to each other. Therefore, we still stick to the scenario that the upward trend is over. During the last reporting week, the number of long positions for the "non-commercial" group decreased by 4,200, while the number of short positions fell by 800. Consequently, the net position decreased by another 3,400 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 75,000, but the gap is narrowing. In principle, it is now evident even without COT reports that the euro is set to extend its weakness.
Analysis of EUR/USD 1H
On the 1-hour chart, the pair is above the Ichimoku indicator lines, and there's still a high probability of another corrective phase. Yesterday, the pair surprisingly advanced after Powell's speech. The technical picture is currently vague, and there is a significant risk of false signals on all time frames.
On October 20, we highlight the following levels for trading: 1.0269, 1.0340-1.0366, 1.0485, 1.0537, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, as well as the Senkou Span B line at 1.0533 and the Kijun-sen line at 1.0558. 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 Friday, there are no significant events lined up for the eurozone and the US. However, since we just witnessed a corrective movement, the euro may gradually move up today.
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.
