Analysis of EUR/USD 5M
EUR/USD traded with low volatility on Monday. Throughout the day, the price moved within a range of no more than 40-50 pips. In general, it was a flat market, although there was a slight bullish bias. There were no significant fundamental or macroeconomic events in either the US or the eurozone. Take note that the "blackout period" has ended, and now representatives of the European Central Bank and the Federal Reserve may and will speak almost every day. However, this does not necessarily mean that their speeches will contain important information for the market. The fact is that the last meetings of the US and European central banks for 2023 have finally ended, so the market has already received all the necessary information it needs. It is unlikely that members of the monetary committees of both central banks will be able to add to the speeches of Powell and Lagarde.
The technical picture remains unchanged. The price continues to be above the Ichimoku indicator lines, so we can expect growth from the pair. However, last week we saw two days of firm growth based solely on the results of the meetings of the two central banks. This week, the pair will need a good reason to sustain the upward movement. We do not believe that the fundamental backdrop for the euro has become favorable after the ECB and Fed meetings. Nonetheless, we should still expect further upward movement.
No trading signals were generated on Monday. The pair started to move from the level of 1.0889, around which, theoretically, one could open buy positions. If anyone managed to do so, they could have earned about 25 pips, as by the end of the day, the price reached the level of 1.0935.
COT report:
The latest COT report is dated December 12. In the first half of 2023, the net position of commercial traders hardly increased, but the euro remained relatively high during this period. Then, the euro and the net position both decreased for several months, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can conclude that the pair is correcting higher, but the correction cannot last long because it is still a correction.
We have previously noted that the red and green lines have moved significantly apart from each other, which often precedes the end of a trend. Currently, after a small correction, these lines are diverging again. Therefore, we stick to the scenario that the upward trend should come to an end. During the last reporting week, the number of long positions for the "non-commercial" group decreased by 3,800, while the number of short positions increased by 1,100. Consequently, the net position decreased by 4,900. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 148,000. In principle, it is now evident even without COT reports that the euro should continue to fall.
Analysis of EUR/USD 1H
On the 1-hour chart, EUR/USD sharply increased last week, reaching the psychological level of 1.1000. However, it failed to go higher, and started a corrective phase. We believe that the euro has risen quite high, and the central banks' meetings have indicated one thing: both Banks will lower key interest rates in 2024.
Currently, the price has rebounded from the 1.0872-1.0889 range. If the pair surpasses the level of 1.0935, you can stay in long positions with 1.1006 as the target, but we consider such a movement unlikely as it represents last week's peak. It would be illogical for the pair to retest this level without any significant reasons.
On December 19, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, as well as the Senkou Span B (1.0872) and Kijun-sen (1.0889) lines. The Ichimoku indicator lines can shift during the day, so this should be taken into account when identifying trading signals. There are also auxiliary support and resistance levels, but signals are not formed near them. Signals can be "bounces" and "breakouts" of extreme levels and lines. Don't forget to set a breakeven Stop Loss if the price has moved in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.
On Tuesday, investors may monitor the final reading of the Eurozone Harmonized Index of Consumer Prices (HICP) for November. Although, it is unlikely to generate much market interest since second estimates rarely differ from the first. In the US, a secondary report on building permits will be due. In general, Tuesday could be another dull day with low-volatility.
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.
