EUR/USD on 1H
The EUR/USD pair continued its downward movement on Monday and closed below the correction level of 100.0% at 1.1704. Thus, the downtrend may continue towards the next level of 1.1629 unless the pair settles above 1.1704 in the near future. The existing downward channel indicates the bearish sentiment in the market. Monday was a quiet day in terms of economic news. The only important event of the day was the speech by ECB President Christine Lagarde in the European Parliament. Lagarde devoted a lot of time to the inflation issues but did not touch the topic of the PEPP asset purchase program. She said that rising inflation in the EU was "temporary" and it arose from disruption to supply chains, higher energy prices, and trade unions' demand to raise wages.
According to Lagarde, these factors will not last long and inflation should fall to 2% next year. She also doubts that a new wave of the coronavirus in the EU can be the reason for the inflation rate to go above expectations. Yet, the central bank of Germany believes that inflation could jump to 4-5% and then decline noticeably in 2022. However, this aspect is only interesting when it comes to ECB's stimulus measures and their reduction. For your reference, the Fed is ready to start tapering its asset purchase program as soon as this year. Most experts agree that the ECB will follow the Fed's move in March 2022 when the PEPP program expires. The regulator can easily extend the deadline, but there is simply no need for this. Notably, traders showed no reaction to this fact as there is nothing really important in it. Christine Lagarde has repeatedly said that inflation was unlikely to remain high for a long time. Therefore, this was hardly surprising news.
EUR/USD on 4H
On the 4-hour chart, the pair closed below the 76.4% Fibonacci retracement level at 1.1782. Thus, the quotes may continue to fall towards the next level of correction of 100.0% at 1.1606. However, two bullish divergences indicate a trend reversal in favor of the European currency and a return to the 76.4% Fibonacci level. If the quotes slip below the lower level of the divergence, this will validate a further downtrend of the pair.
Economic calendar for US and EU:
EU - ECB President Christine Lagarde's speech (12-00 UTC).
US - FOMC member Charles Evans will deliver a speech (13-00 UTC).
US - Powell will deliver a speech (14-00 UTC).
US - Secretary of the Treasury Janet Yellen will deliver a speech (14-00 UTC).
US - FOMC member Michelle Bowman will deliver a speech (17-40 UTC).
US - FOMC member Rafael Bostic will deliver a speech (19-00 UTC).
On September 28, markets will pay attention to the speech by ECB President Christine Lagarde. In the US, investors will focus on the statements by Janet Yellen and Jerome Powell that are also quite important. Thus, the information background is moderate today.
COT (Commitments of traders) report:
The latest COT report showed that the sentiment of the non-commercial category of traders has changed dramatically during the week. Traders opened 550 long and 18,550 short positions on the euro. Thus, the total number of open long contracts has increased to 188,000 and the total number of short contracts - to 178,000. Over the past few months, the non-commercial category of traders has been actively getting rid of long contracts on EUR and increasing the short ones. This process still continues. However, the euro's fall has been insignificant over this period of time. Thus, the European currency has a good chance of continuing its downtrend although bears still fail to close below the 1.1704 level.
Outlook for EUR/USD and trading recommendations:
I recommend going long on the pair as soon as the quotes close above the Fibo level of 100.0% at 1.1704 on H1 with the target at 1.1772. It is a good idea to sell the pair if the price closes below 1.1704 on H1 with the target at 1.1629. At the moment, these positions can be held open.
Definitions:
Non-commercial traders are large market players, including banks, hedge funds, investment funds, private, and large investors.
Commercial traders are commercial enterprises, firms, banks, corporations, companies that buy currency not to obtain quick profit, but to ensure current activities or export-import operations.
Non-reportable category of traders refers to small speculators who do not have a significant impact on the price.
