Analysis of EUR/USD 5M
On Thursday, EUR/USD reversed downwards, falling almost as sharply as it rose the day before. In yesterday's articles, we talked about not being in a rush to analyze the results of the FOMC meeting, especially the market's reaction to them. The market's initial reaction after the central bank meeting can be false and deceptive, as market participants trade on emotions. We said that very often the pair returns to its initial positions the next day. And that's exactly what happened on Thursday.
In the fundamental articles, we mentioned that the results of the FOMC meeting and Federal Reserve Chair Powell's rhetoric at the press conference cannot be interpreted as dovish. If the Fed reduced the number of expected rate cuts and raised inflation forecasts, then what's dovish about that? Therefore, it was absolutely logical for the US dollar to fall on Wednesday evening. And on Thursday, the market simply "paid back" the US dollar. The fact that the trendline was broken should not be taken into account, as we also mentioned yesterday. The downtrend persists, and we expect the euro to fall further.
As for trading signals, as soon as the price started moving, good signals began to form immediately. On Wednesday evening, you could buy once the price breached the Senkou Span B and Kijun-sen lines, but such a deal contradicted the fundamental background, and the signal was formed too late. Therefore, it was better not to enter the market. Yesterday, the pair rebounded from the level of 1.0935 and dropped to the Ichimoku indicator lines. This was the first signal, with a profit of 25 pips. Then there was a rebound from the critical line, but the long position triggered the Stop Loss to breakeven, which should have been set when the price moved in the intended direction by 15 pips. Traders could earn another 15 pips on the last sell signal.
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 are increasing 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 start 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. The dollar should still rise. And after the "moderately hawkish" FOMC meeting - even more so.
On March 22, 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 (1.0911) and the Kijun-sen (1.0891). 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 Friday, European Central Bank Chief Economist Philip Lane will speak, and the IFO business climate report will be published in Germany. Both events are secondary of importance. There are no scheduled events in the US, not even secondary ones. Therefore, volatility may fall to the lowest levels.
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.
