Long term outlook
The EUR/USD pair showed weak trading this week. On the one hand, it is quite strange, because there were some macroeconomic statistics, and there was a fundamental and geopolitical background as well. However, markets ignored almost all the macroeconomic and fundamental data. At the same time, traders did not pay much attention to geopolitics. It seems that the market just got scared. It was afraid of uncertainty and now simply does not know how to conduct trading. In case of a worsening of the geopolitical situation in important regions of the world, the US dollar may increase. The outflow of investments from the dangerous assets has begun, and global investors are looking for safe-haven assets and currencies to protect their capital from possible depreciation. What could be more serious than a military conflict over a vast area in Eastern Europe? In fact, there is no invasion. The situation is as follows: Russian troops continue to build up near the Ukrainian borders, but no attempts to cross these borders have been made. The situation so far has only escalated in the Donbas, in the so-called LNR and DNR, where a mass evacuation of civilians to the Rostov region of the Russian Federation began yesterday. However, the region has been turbulent for eight years, so this news does not have a strong impact on the US dollar. Nevertheless, the West and the EU continue to argue that Moscow may order an attack on Ukraine in the near future, and US President Joe Biden said late last night that such an order had already been given. Thus, within the next couple of days, the situation could become very tense, and military actions could start in Donetsk and Luhansk regions.
COT report analysis
The fresh COT report was released on Friday. It showed a new strengthening of bullish sentiment among professional traders. This time the "Non-commercial" group closed about 7,000 euro sell contracts and opened 5,000 buy contracts. Thus, the net position has increased by 12 000, which is clearly seen in the second indicator in the picture above. The total amount of Buy contracts exceeds the number of Sell contracts by 50,000, so now we can really say that a new uptrend is beginning to form. It could be said, but there is always a twist. The euro is not growing. It doesn't grow even when there are technical reasons for it. The pair has been falling for 14 months, so the correction is a quite probable scenario. However, the fundamental data do not let the euro grow, so it is very close to its annual lows. In fact, only 100 points from them. Moreover, after the late November quotes fell to 1.1180, traders failed to make a proper correction to the currency pair. The maximum deviation from the lows was 360 pips. So, the COT report does not coincide with the fundamental background and technical picture that we see daily. This is very strange, given the small influence of central banks on the money supply at this time.
Fundamental events analysis
There were several quite important events, which were ignored by the market. On Monday, ECB head Christine Lagarde gave a speech, who once again said that the regulator has no plans to raise its key rate this year. The US retail sales report was very strong, but traders ignored it. The Fed's minutes did not trigger any reaction in the market, though it is fair to say that it did not contain any new information. As a result, the situation turned out, when there was news, but the market didn't want to react to them. This situation may persist in the coming week, as the whole world is now watching the possible escalation of the conflict in Ukraine and seems to be preparing to react exactly to this news. Only if this news is official and reflects decisions taken at the highest level, rather than rumors and speculation. Overall, I believe that the situation is very unstable right now.
Trading plan for February 21 - 25:
1) On the daily chart, the pair tried again to start a new uptrend, but could not break through the Senkou Span B line. The pair rebounded and now it is trading between the Senkou Span B and Kijun Sen lines. It may start trading sideways in the long term, or it might be the beginning of a new spiral of the downtrend. One thing is for sure, there are almost no reasons for an uptrend now. Moreover, almost all factors suggest that the euro is likely to fall and the dollar will rise.
2) As for the EUR/USD selling, it needs to be fixed again below the critical line. Between 1.1100 and 1.1200 traders have already shown that they are not ready to continue selling the euro, so it is highly likely that the downtrend is over. However, a lack of reasons for the pair's growth and traders' unwillingness to buy the euro might lead to a resumption of the decline.
Explanations to pictures:
Price levels of support and resistance, Fibonacci levels - levels, which are targets for the opening of purchases or sales. Take-profit orders can be placed near them.
Ichimoku indicator (standard settings), Bollinger Bands (standard settings), MACD(5, 34, 5).
Indicator 1 on the COT charts - the size of the net position of each category of traders.
Indicator 2 on the COT charts - the size of the net position for the "Non-commercial" group.
