EUR/USD - 24H.
The EUR/USD currency pair has been correcting within the new upward trend for the past week. However, on Friday, it rose sharply. Thus, we can assume that the correction has ended. In general, it was not even a correction but a banal pullback. The pair could not even work out the critical line, which was located very close. Thus, the new upward trend that started a month and a half ago remains and is most likely a continuation or part of the upward trend of 2020. We said earlier that the pair was correcting for the first three months of 2021. However, the correction was bound to end sooner or later.
Thus, the global technical picture over the past week has not changed at all. Based on this, we expect further growth of the European currency. More precisely, the fall of the US currency. The reasons for this remain the same. And this reason can still work for a very long time. There's nothing you can do about it. We could say that the dollar is now falling due to some other factors. However, most macroeconomic statistics now show that the American economy is recovering faster and stronger than the European one.
Moreover, after the fall in the second quarter of 2020, the US economy has recovered more strongly than the European one. However, initially, it was the US economy that shrank three times more than the EU economy. Thus, the absolute majority of macroeconomic factors favor the fact that the dollar should become more expensive and not vice versa. And this has nothing to do with the alleged disappointment of the markets regarding the Fed's unwillingness to curtail the quantitative stimulus program. Hundreds of billions and trillions of dollars continue to pour into the US economy, which leads to an increase in the money supply and the subsequent depreciation of the dollar. Even inflation has nothing to do with it, although it can make things worse for the dollar.
COT report.
During the last reporting week (May 4-10), the EUR/USD pair increased by 60 points. Thus, the European currency continues to be in high positions and may update its 2.5-year highs in the coming weeks. Professional traders, who started to reduce buy contracts since last September, have started to increase them again in the previous few weeks. Recall that the COT reports do not consider the amount of money poured into the economy, and they do not reflect the demand for the US currency. Thus, in recent months, COT reports do not always reflect an accurate picture of what is happening in the foreign exchange market. Recall that significant players can sell the euro currency, but if the Fed is pouring trillions of US dollars, the euro will still rise in price, and COT reports will show that the demand for the euro currency is falling. However, in recent weeks, the group of "Non-commercial" traders seems to have rethought some things and will now follow the trend itself, the tone of which is set by the Fed. During the reporting week, commercial traders opened 17 thousand new contracts for buying and 5.5 thousand contracts for selling. Thus, the net position immediately increased by 11.5 thousand, which is quite a lot. The first indicator in the illustration above again shows the divergence of the lines showing the net positions of commercial and non-commercial traders, so at this time, we can conclude that the upward trend has resumed. The second indicator also shows that the "Non-commercial" group has started to increase purchases of the European currency.
Last week, there was an extremely small amount of macroeconomic statistics. Naturally, the most important report was the US inflation report. The consumer price index rose to 4.2% in annual terms, which immediately brought panic to both the stock market and the currency market. On the stock market, leading indices fell all week, as investors began to fear further inflation and strong overbought shares of many companies that have risen strongly over the past year. In the foreign exchange market, the participants fell into a state of shock and traded on Wednesday and Thursday very nervously and in different directions. Recall that high inflation is a negative factor for the currency. Also, on Friday, it became known that retail sales in the United States rose by 0.0% in April, which only added additional pressure on the US currency, which resumed its decline on Friday. It would have continued it anyway, but in an upward trend, the markets are looking for reasons to buy the pair, not sell it.
Trading plan for the week of May 3-7:
1) On the 24-hour timeframe, the trend continues to be upward. Thus, long positions also remain relevant. We believe that the nearest targets are the two previous local highs of 1.2243 and 1.2349. It is quite possible that in the next week or two, both goals will be worked out. As for the prospects of the euro/dollar pair, we are still considering only the option of continuing the fall of the US currency, as the fundamental global factor speaks in favor of this.
2) The downward trend is still not relevant. The US dollar does not support global fundamentals, so it will continue to fall in price in 2021. Of course, if the fundamental background for the dollar or the euro changes dramatically, we can expect a change in the direction of movement, but so far, there are no grounds for such conclusions. Therefore, it is not recommended to trade down for the time being since the pair is located above the critical line. Some hopes for a resumption of the downward movement may appear only below the Kijun-sen line (1.2024).
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.
