Analysis of EUR/USD 5M
EUR/USD continued to move inside an almost horizontal, but formally known as an ascending channel. Since the last rebound occurred from the lower boundary of the channel, the price rose to the upper boundary over the course of several days. The movement turned out to be absolutely predictable, although yesterday it was not only technical in nature.
In the morning, Services and Manufacturing PMI data for Germany and the euro area were released. The Services PMI data turned out to be significantly stronger than forecasts, while the Manufacturing PMIs were either worse than forecasts or simply weak. The market considered the services sector more important, so the euro started to rise in the morning. However, it immediately stopped, and if it were not for the US PMIs (which usually have little impact), the euro may not have risen as much. However, this time the market decided to pay attention to the US S&P indices, so the dollar fell for the second time in the day as the US PMI data turned out to be weak. Both indices came out weaker than forecasted.
Overall, on the hourly time frame, the pair continues to gradually correct higher. We do not believe that the euro has started a new phase of growth in the medium-term. We expect the correction to end and the downtrend to resume.
As for trading signals, two were formed on the 5-minute time frame. First, the pair settled above the range of 1.0646-1.0669, and then rebounded from the same range. In both cases, the breakthrough or rebound occurred precisely when the reports were published. It was quite difficult to react to these signals. If these reports had not been released, we would hardly have seen the euro rise. That's why we believe that the downward trend persists in the medium term.
COT report:
The latest COT report is dated April 16. 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 (red line) has been decreasing in recent months, while that of commercial traders (blue line) has been increasing. This shows that market sentiment is turning bearish, as speculators increasingly sell the euro. Furthermore, we don't see any fundamental factors that can support the euro's strength, while technical analysis also suggests a downtrend. Three descending trend lines on the weekly chart indicate that there's a good chance of sustaining 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 increased by 3,500, while the number of short positions increased by 21,500. Accordingly, the net position decreased by 21,500. Overall, both the euro and the net position continue to decline. The number of buy contracts is higher than the number of sell contracts among non-commercial traders by only 12,000 (previously 32,700).
Analysis of EUR/USD 1H
On the 1-hour chart, the downtrend persists but EUR/USD has remained in a flat phase for a week now. Since expectations for a Federal Reserve rate cut in 2024 have significantly decreased, the US dollar can and should continue to rise for a couple more months at least. Especially in light of the upcoming European Central Bank rate cut in June. Practically all the factors suggest downward movement for the pair. We consider the recent upward movement as part of a standard correction.
On April 24, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0836, 1.0886, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B line (1.0745) and the Kijun-sen line (1.0661) lines. 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, the IFO Business Climate Index will be published in Germany, and the US will release a report on orders for durable goods. The US report is quite important, and this week, the market has shown that it is ready to react to the economic reports... Expect active 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;
