Analysis of EUR/USD 5M
EUR/USD continued its bullish correction on Friday. The pair is currently moving towards the Senkou Span B line, which can be considered a "trend line". If it settles below it, the prospects of a downtrend remain, but if it climbs above it, this may change the trend into an upward one. After a relatively long decline (the euro was moving down for one and a half months), the upward correction looks logical and inevitable. However, we do not believe that this marks the end of the euro's decline. Every day, we receive more and more evidence that the first Federal Reserve rate cut will take place in June, which is "only" 3 months later than the market expected and has already been factored into the current dollar exchange rate. Therefore, we believe that the US currency should continue to strengthen.
The pair fell and rose on Friday. The US released two reports, one of which supported the dollar, and the other led to a decline. Take note that the market had a weak reaction in both cases (no more than 25 pips). However, the Producer Price Index supported the US currency, while the University of Michigan Consumer Sentiment Index weighed it down.
Speaking of trading signals, there were three on Friday, but volatility was quite disappointing, making it very difficult to make a profit. During the European session, the price bounced off the level of 1.0757 and rose by 15 pips. During the U.S. session, the price settled below the Kijun-sen and fell by 10 pips. Then the price settled above 1.0757, and the pair only grew by 20 pips. So the problem was due to the fact that volatility was low rather than the signals themselves. The first trade closed at breakeven with a Stop Loss, the second with a small loss, and the third with a profit of about 20 pips.
COT report:
The latest COT report is dated February 13. The net position of non-commercial traders has been bullish for quite some time. In simpler terms, 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 indicates a shift into a bearish bias, as speculators are building up 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 signals the formation of a downtrend.
We have already drawn your attention to the fact that the red and blue lines have significantly diverged, often preceding the end of a trend. Currently, these lines are moving towards each other (indicating a trend reversal). 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 8,300, while the number of short positions increased by 17,700. Accordingly, the net position fell by 9,400. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 52,000 (previously 63,000). Thus, commercial traders continue to sell the euro.
Analysis of EUR/USD 1H
On the 1-hour chart, the downtrend persists, even if the pair consolidated above the Kijun-sen. In our opinion, all the factors currently suggest that the dollar will strengthen. Therefore, we expect the euro to fall. The nearest target is the area of 1.0658-1.0669 and the pair may achieve this target in the near future. Now we need to wait for the corrective phase to end and the price to firmly settle back below the critical line.
On February 19, 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 (1.0810) and Kijun-sen (1.0747) 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 Monday, there are no significant events lined up in the European Union or the United States. Not even minor events. Therefore, we expect the same low volatility and quiet movements, regardless of the direction. It is possible that the pair will try to reach the Senkou Span B line.
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.
