Analysis of EUR/USD 5M
EUR/USD continued to show positive trades on Monday. By the end of the day, the euro had appreciated by just a few pips since the market opened with a bearish gap. It's hard to say why there was a gap, but the pair successfully recouped it during the day. Thus, the euro showed quite a decent growth during the day. This time, the market found a new formal reason to buy the euro – the elections in France. A week earlier, we observed the same situation – the euro rose due to the not entirely convincing victory of Marine Le Pen's party in France. Now, Marine Le Pen's party lost the second round of elections, which triggered the euro's rise. There were no macroeconomic or fundamental events in the EU or the US on Monday.
Therefore, the technical picture remains unchanged. An uptrend has formed on the hourly timeframe, supported by the trendline. As a result, from a technical perspective, short positions will become valid only after the price consolidates below the trendline. In the medium term, we still expect the euro to fall, but each day the market shows more and more that it is not inclined to sell. If the Federal Reserve starts discussing the possibility of cutting interest rates at some point, this could be the final blow for the US dollar. But until that moment, it still has the chance to bring back the medium-term trend.
The pair showed flat dynamics on Monday. All signals were formed around the level of 1.0836, which was turned into the level of 1.0843. Traders could have tried to execute one or two signals, but it was extremely difficult to expect good movement. Volatility was low again, so any signals could yield a profit of at most 10-20 pips.
COT report:
The latest COT report is dated June 25. The net position of non-commercial traders has remained bullish for a long time and remains so. The bears' attempt to gain dominance failed miserably. The net position of non-commercial traders (red line) has been declining in recent months, while that of commercial traders (blue line) has been growing. Currently, they are approximately equal, indicating the bears' new attempt to seize the initiative.
We don't see any fundamental factors that can support the euro's strength in the long term, while technical analysis also suggests a continuation of the downtrend. Three descending trend lines on the weekly chart suggests that there's a good chance of further decline. In any case, the downward trend is not broken.
Currently, the red and blue lines are approaching each other, which indicates a build-up in short positions on the euro. During the last reporting week, the number of long positions for the non-commercial group decreased by 4,100, while the number of short positions increased by 12,300. As a result, the net position decreased by 16,400. According to the COT reports, the euro still has significant potential for a decline.
Analysis of EUR/USD 1H
On the 1-hour chart, EUR/USD failed to break through the 1.0658-1.0669 area and decided to form a new upward trend. We currently have an ascending trend line, above which the upward trend persists. It may end this week, but it will take at least a few days for the price to fall to the trendline. It is impossible to confirm the end of the uptrend without breaking through this line and the Ichimoku indicator lines. Moreover, the US inflation report could mount pressure on the dollar.
On July 9, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0843, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0722) and Kijun-sen (1.0794) 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 Tuesday, Fed Chair Jerome Powell will give his first speech in the US Congress. Theoretically, this event could trigger a market reaction, but right now we don't see how Powell's rhetoric might change. If the Fed chair tells Congress the same things he mentioned before, then what will the market react to?
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;
