Analysis of EUR/USD 5M
On Tuesday, EUR/USD maintained a downward trend but showed very weak volatility and very weak downward movement. We mentioned the possibility of a stable and confident downward movement. However, in reality, the euro is falling by an average of 20 pips a day. If it showed volatility of at least 60 pips, such movements would have been appealing.
However, what do we have in reality? The pair fell 40 pips, then it climbed 30 pips. Even if signals were formed at the reversal points, it would have hardly been profitable. Take note that it's impossible to catch a reversal and be accurate by 5 pips. Therefore, out of the 40 pips of movement, you need to subtract about 20 pips for entry and exit from the trade, assuming signals are formed. For instance, the price never approached important levels or lines on Tuesday.
The macroeconomic background was present in the EU and the US, but the reports weren't the most important. Economic sentiment indices from the ZEW Institute turned out better than forecasts but did not boost the euro. The US reports on building permits and housing starts also turned out to be strong, but they didn't provoke a market reaction either. Therefore, traders did not pay attention to macroeconomics.
Tonight, the results of the FOMC meeting will be announced in the US, and perhaps that's why the market is a bit nervous. But even its nervous state looks ridiculous due to the weak movements.
COT report:
The latest COT report is dated March 12. The net position of non-commercial traders has been bullish for quite some time. Basically, the number of long positions in the market is higher than the number of short positions. However, at the same time, the net position of non-commercial traders has been decreasing in recent months, while that of commercial traders has been increasing. This shows that market sentiment is turning bearish, as speculators increase the volume of short positions on the euro. We don't see any fundamental factors that can support the euro's growth in the long term, while technical analysis also suggests a downtrend. Three descending trend lines on the weekly chart indicate that there's a good chance of extending the decline.
At present, the red and blue lines are moving towards each other (indicating a trend reversal after a rise). Therefore, we believe that the euro will fall further. During the last reporting week, the number of long positions for the non-commercial group decreased by 6,000, while the number of short positions decreased by 14,100. Accordingly, the net position increased by 8,100. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 74,000 (previously 66,000).
Analysis of EUR/USD 1H
On the 1-hour chart, EUR/USD may initiate the long-awaited downtrend, which could take the price far down. The price has breached the Senkou Span B line, which means that we can expect the pair to fall further. The descending trendline also supports sellers. Despite the low volatility, the pair still managed to show a downward movement yesterday, which is encouraging because the dollar could have risen. We hope that the Federal Reserve doesn't give unpleasant surprises to the dollar on Wednesday.
On March 20, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0823, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B line (1.0888) and the Kijun-sen (1.0899). The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a Stop Loss to breakeven 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.
On Wednesday, European Central Bank President Christine Lagarde will speak, and the FOMC meeting will be the day's highlight. Fed Chair Jerome Powell will speak, and updated forecasts for interest rates over the next two years will be provided. This information is crucial, so we expect volatility to be higher than what we've seen in recent weeks. Nevertheless, we wouldn't expect super strong movements.
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.
