Analysis of EUR/USD 5M
The EUR/USD pair plummeted in the first half of Wednesday. This wasn't surprising because, first of all, we expected the euro to fall even without economic reports, and secondly, EU PMIs completely collapsed. Yesterday, we mentioned that a significant deviation from forecasts could trigger a reaction, and that's exactly what happened. While the manufacturing sector in Germany and the EU saw a slight increase (which, however, is insignificant as both indicators remained well below 50.0), the services sector in the same locations dropped below the "waterline," causing the euro's crash. In the second half of the day, the exchange rate pared losses, for which there is no macroeconomic explanation. But we've also pointed this out before - the euro drops calmly and leisurely, often correcting itself.
Speaking of trading signals, they were simply ideal. Initially, the pair rebounded from the 1.0868 level, and given the poor macroeconomic backdrop in the EU, selling was a good move. However, the challenge was to enter the market in time, as the pair fell by 50 pips in just 5 minutes. Nevertheless, those who managed to act in time made a profit. There was a bounce from the 1.0806 level, afterwards the price rose back to 1.0868. These two trades could have earned around 70-80 pips.
COT report:
On Friday, a new COT report for August 15 was released. Over the last 11 months, COT reports fully corresponded to what is happening in the market. The chart above clearly shows that the net position of major traders (the second indicator) began to grow in September 2022 and at about the same time the euro started rising too. In the last 6-7 months, the net position has not risen but the euro remains at very high levels. At the moment, the net position of non-commercial traders is bullish and remains strong. The euro keeps climbing against the US dollar (in the long term).
I have already mentioned the fact that a fairly high value of the net position signals the end of an uptrend. This is also confirmed by the first indicator where the red and green lines are very far from each other. Usually, it precedes the end of the trend. During the last reporting week, the number of long positions of the non-commercial group of traders increased by 4,400 and the number of short ones fell by 5,600. The net position grew by 10,000 contracts. The number of long positions is higher than the number of short ones of non-commercial traders by 160,000. This is a very large gap as the difference is almost threefold. Even without COT reports, it is obvious that the euro should decline but speculators are still in no hurry to sell.
Analysis of EUR/USD 1H
On the 1H chart, the pair broke out of the sideways channel, where it had been trading for two weeks, but the downward movement is weak. The euro could enter a corrective phase, but it has no grounds to rally. Volatility may remain low for the rest of the week since there will be few major fundamental and macroeconomic events. At least the backdrop will be significant on Friday, as Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde are scheduled to speak.
On August 24, traders should pay attention to the following key levels: 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0935, 1.1043, 1.1092, 1.1137, 1.1185, as well as the Senkou Span B line (1.0953) and Kijun-sen (1.0866). The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits. Traders look for signals at rebounds and breakouts. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 15 pips. This will protect against possible losses if the signal turns out to be false.
Today, the EU's economic calendar is empty, while in the US, reports on unemployment benefit claims and durable goods orders are scheduled for release. The latter report could trigger a strong reaction if its figures significantly deviate from forecasts.
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.
