M5 chart of EUR/USD
EUR/USD tried to cross 1.0868 on Wednesday twice, but by the end of the day it still moved away from this mark. If we weren't already used to the fact that the euro could rise by more than 1000 pips over the past months, we would say that the market is now in a flat. The pair has been between 1.0780 and 1.0868 for several days. But it might be just the calm before the euro surges. Do recall that the euro is desperately unwilling to correct, and only takes pauses from time to time. Yesterday the EU published a totally uninteresting inflation report. "Uninteresting" because it was the second estimate of the indicator for December, and it was not at all different from the first. Moreover, inflation fell quite noticeably, by 0.9%, which could in no way provoke a rise in the euro in the first half of the day. The euro was already falling even more during the US session, though the US reports were also weak.
Despite the unusual behavior, Wednesday's trading signals were actually quite good. The first buy signal was not formed at the beginning of the movement, near 1.0806. After that the price managed to rise to 1.0868 and rebound from it, which was exactly ideal. The profit is 40 pips. The rebound from 1.0868 should have been used to open a short position, but the price failed to reach 1.0806, so this trade was closed with a Stop Loss at breakeven. Then followed a buy signal around 1.0868, which turned out to be false, the loss was 20 pips. And the last sell signal near the same level brought traders the profit of about 60 pips, as the price dropped below the critical line. In general, the day was very successful.
COT report
The COT reports for the euro in the last few months have been fully consistent with what is happening in the market. You can clearly see on the chart that the net position of big players (the second indicator) has been growing since early September. Around the same time, the euro started to grow. At this time, the net position of the non-commercial traders has been bullish and strengthens almost every week, but it is a rather high value that allows us to assume that the upward movement will end soon. Notably, the green and red lines of the first indicator have moved far apart from each other, which often means the end of the trend. During the given period, the number of long positions held by non-commercial traders increased by 16,000, whereas the number of short positions rose by 11,000. Thus, the net positions increased by 5,000. The number of long positions is 135,000 higher than the number of short positions opened by non-commercial traders. So the question now is how long will the big players increase their longs? Moreover, from a technical perspective, a bearish correction should have started a long time ago. In my opinion, this process can not continue for another 2 or 3 months. Even the net position indicator shows that we need to "unload" a bit, that is, to correct. The overall number of short orders exceeds the number of long orders by 48,000 (702,000 vs. 655,000).
H1 chart of EUR/USD
You can see on the one-hour chart that EUR/USD has a chance to move down. Crossing the critical line is quite an important signal, unless the price manages to rise above it today. This is a possibility, because lately the pair's movement seems more like a flat. On Thursday, the pair may trade at the following levels: 1.0658-1.0669, 1.0736, 1.0806, 1.0868, 1.0938, 1.1036, 1.1137 and also Senkou Span B (1.0675) and Kijun Sen (1.0802) . Lines of the Ichimoku indicator may move during the day, which should be taken into account when determining trading signals. There are also support and resistance levels, but signals are not formed near these levels. Bounces and breakouts of the extreme levels and lines could act as signals. Don't forget about stop-loss orders, if the price covers 15 pips in the right direction. This will prevent you from losses in case of a false signal. On January 19, European Central Bank President Christine Lagarde will give a speech in the EU, which might be interesting. Then there are just minor reports and a few speeches from the Federal Reserve in the US.
What we see on the trading charts:
Price levels of support and resistance are thick red lines, near which the movement may end. They do not provide trading signals.
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, moved to the one-hour chart from the 4-hour one. They are strong lines.
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 reflects the net position size of each category of traders.
Indicator 2 on the COT charts reflects the net position size for the non-commercial group.
