Analysis of EUR/USD 5M
The EUR/USD pair sustained its growth on Monday without even attempting to correct during the day. We are witnessing almost uninterrupted upward movement, even on days without news. However, there is always a news item that could hypothetically explain the movement. Any movement can easily and simply be explained in hindsight. For instance, on Monday, several representatives of the Federal Reserve's monetary committee spoke again about a possible rate cut in September. The fact that the market has been anticipating this scenario for several weeks does not disturb anyone. Moreover, market expectations for a rate cut in September have weakened, as the market initially expected a 0.5% cut and now anticipates only a 0.25% cut. This would suggest that the US dollar should at least appreciate slightly. But no. The market continues its relentless buying of the EUR/USD pair.
What to do with all this? Basically, the only viable option now is to follow the trend. Discussing short positions makes no sense as long as the price does not settle below the trendline. Even then, a decline is not guaranteed. The market is currently based not on concrete facts but on its expectations. Just as easily, it could expect a 0.5% rate cut in November.
No trading signals were formed on Monday. The last buy signal was generated on Friday evening when the price closed above the 1.1006 level. Anyone who opened long positions before the weekend made a good profit on Monday. However, few expected new gains for the pair on a dull Monday.
COT report:
The latest COT report is dated August 13. The illustration above shows that the net position of non-commercial traders has been bullish for a long time and remains so. The bears' attempt to move into their zone of dominance failed spectacularly. The net position of non-commercial traders (red line) has declined in recent months, while that of commercial traders (blue line) has grown. Currently, they are approximately equal, indicating a new attempt by bears to seize control.
We also still do not see any fundamental factors supporting the strengthening of the euro, and technical analysis indicates that the price is in a consolidation phase—in other words, a flat. In the weekly time frame, it is clear that since December 2022, the pair has been trading between levels 1.0448 and 1.1274. In other words, we have moved from a seven-month range into an 18-month one.
At the moment, the red and blue lines are slightly moving away from each other, which indicates that long positions on the single currency are increasing. However, given the flat conditions, such changes cannot be the basis for long-term conclusions. During the last reporting week, the number of long positions in the non-commercial group decreased by 3,600, while the number of short positions increased by 3,000. Accordingly, the net position decreased by 6,600. According to the COT reports, the euro still has the potential for decline.
Analysis of EUR/USD 1H
EUR/USD continues a gradual and measured upward movement in the hourly time frame. Last week, new US inflation reports gave the market another reason to sell the dollar again. This week, the market is anticipating dovish rhetoric from Fed Chair Jerome Powell. The market has fully seized these opportunities to sell the dollar. We still have the ascending trend line at our disposal, which supports the euro. In principle, none of the indicators currently signal the end of the upward trend.
For August 20, 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 line (1.0893) and the Kijun-sen line (1.1004). The Ichimoku indicator lines can move during the day, so this should be considered when identifying trading signals. Remember to set a Stop Loss to break even 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, the European Union is scheduled to release the second estimate of July inflation, which is unlikely to impact the pair's movement. The euro can sustain its growth completely independently of external factors. Currently, there is no sign of even a correction in the market.
Explanation of illustrations:
Support and resistance levels: Thick red lines near which the trend may end.
Kijun-sen and Senkou Span B lines: These Ichimoku indicator lines, transferred from the 4-hour timeframe to the hourly chart, are strong lines.
Extreme levels: Thin red lines from which the price previously bounced. These provide trading signals.
Yellow lines: Trend lines, trend channels, and other technical patterns.
Indicator 1 on COT charts: The net position size for each category of traders
