EUR/USD 24H chart
Another trading week has come to an end without giving any clarity to the situation. On the one hand, traders still have a rebound signal from the Senkou Span B line on the 24-hour timeframe. Another signal comes from the 50.0% Fibonacci level which is extended along the upward section that has been there for two months. Thus, there is every reason to expect further upward movement. However, this week, the pair declined first to rise later and fished the week at the opening levels. Also, the price remained inside the Ichimoku cloud which is usually not a favorable sign for an uptrend. The Ichimoku cloud often indicates a flat movement although now there is no clear sideways channel. We believe that the uptrend will continue in the long term. There are several reasons for this. First of all, buy signals are still in place. Secondly, the fundamental background has not changed over the past week. Besides, the traders' sentiment stayed largely the same. Finally, nothing has drastically changed over the past week. So why should traders suddenly change their mind and rush to the US dollar if they have been actively getting rid of it over the last year? Thus, the greenback can rely only on a technical correction. To enter the correctional phase, we need to wait for the price to settle below the Ichimoku cloud and the 50.0% Fibonacci level.
COT report
For the trading week of February 9-15, EUR/USD rose by 70 pips. Volatility during this period was very low. On the chart above, you can see that the pair has not significantly decreased over the past weeks. We constantly mention the correction in January. But if you look at the chart, it becomes clear that this correction is nothing compared to the entire 11-month uptrend. It was a simple pullback. So we can conclude that market participants still do not favor the US dollar. Two weeks ago, the COT report recorded a sharp drop in the number of buy contracts for the non-commercial group of traders. Then, the net positions for non-commercial traders dropped by 33,000 at once. It could be a good start for a downtrend, but next week the COT report recorded an increase in the net positions of major players. The latest report released on Friday showed changes in favor of the bulls. This means that professional traders have again started to buy the euro. Thus, 2,500 new long contracts were opened along with 1,300 short contracts. The changes are minimal and do not greatly affect the overall picture. So, the bullish sentiment prevails with more than 220,000 long contracts, while only 84,000 short contracts remain open. The indicators below clearly show that the trend is not going to change to bearish. The green and red lines of the first indicator reflect the net positions of the non-commercial and commercial groups of traders. The lines do not converge, therefore, the current trend remains in place.
Not so many important fundamental events happened this week. Neither Jerome Powell nor Christine Lagarde made any statements. Besides, no serious fundamental topics were discussed either in the EU or in the US. Macroeconomic reports published during the week were not of great importance as well so or they were just ignored by the markets. By and large, traders still await the new stimulus package that should be approved in the US anytime soon. This economic rescue package is high on the agenda now, as it can have a significant positive effect on the US economy, but at the same time it will put pressure on the US dollar. However, there is still no information on it, so investors have pay attention to other topics. Thus, in the European Union, the Italian political crisis seems to have been resolved. In addition, the fiscal aid from the EU economic recovery fund should be distributed among those countries that have prepared detailed recovery plans for their economies. They will receive grants and loans from the European Union. Yet, this information has not been officially confirmed. Traders also hoped to get some hints from the Fed's minutes this week, but the report lacked any important or new information.
Trading plan for the week of February 22 - 26:
1) The quotes bounced off the Senkou Span B line and the 50.0% Fibonacci level - 1.1975 and are likely to maintain the bullish trend, since these signals have not been cancelled. Thus, we would recommend buying the pair in small volumes considering the beginning of a new uptrend. The immediate target for the next week or two is the resistance level of 1.2305 which is located near the 2.5-year highs. This is the level where buyers will eventually head for.
2) The downtrend may also resume but only if the bears manage to break through the Senkou Span B line on the 24-hour timeframe and the 50.0% Fibonacci level as well. If this happens, we would recommend opening new short positions with the targets at the support areas of 1.1885 and 1.1778. A lot will depend on the global fundamental factors that are still not in favor of the US dollar.
Notes for the pictures:
The resistance/support levels are the target levels when opening long/short positions. You can place take profit levels next to them.
Indicators Ishimoku, Bollinger bands, MACD
Areas of support and resistance are the ones from where the price has rebounded a few times.
Indicator 1 in the COT charts is a size of net positions for each category of traders.
Indicator 2 in the COT charts is a size of net positions for the non-commercial group.
