Long-term outlook.
The EUR/USD currency pair has continued to fall this week, although at a considerably slower rate. In contrast to the prior week, fundamental and macroeconomic backgrounds were essentially missing this week, leaving traders with nothing to react to. We can only think back to Jerome Powell's speech on Tuesday, which caused a mini-storm in the market. However, it appears that the market was unable to clearly understand what Powell had to say, as the dollar fell and then rose by 100 points within an hour before things settled down. The week's significant events have come to a close now.
In theory, trading is still one of the market's top concerns, but it is also starting to recede into the background. Trading professionals can see that the time to stop tightening monetary policy is rapidly approaching. Central banks are beginning to slow the pace of rate increases. The final promotion might not happen for another few months, or possibly six. Although the index has been dropping steadily in both the EU and the US up to this point, inflation may yet force central banks to occasionally alter their plans. For instance, Powell acknowledges that the era of high rates may last longer and that the rate may increase more than anticipated at the moment. Additionally, there is no possibility of loosening monetary policy in 2023, and the economy won't likely hit the desired inflation rate of 2% until at least 2024. Rates have historically been significant, but market participants are aware of what the Central Bank will likely do soon.
The technical picture shows a lot of information. The pair nonetheless managed to break through the crucial level on the 24-hour TF, which creates "amazing" possibilities for it to drop to the Senkou Span B line, which is 100–400 points lower. Since the euro is still significantly overbought and the current correction is not as powerful as we would like it to be, we do not doubt that the pair will continue to fall next week.
COT evaluation.
The recent COT reports on the euro currency are entirely consistent with market activity. The aforementioned image makes it very evident that from the start of September, the net position of significant players (the second indicator) has been improving. At about the same time, the value of the euro started to increase. Although the net position of non-commercial traders is currently "bullish" and growing virtually weekly, it is the relatively high value of the "net position" that now permits the upward trend's impending end. This is indicated by the first indicator, which frequently occurs before the end of a trend and on which the red and green lines are quite far apart. The number of buy contracts from the "non-commercial" group increased by 9.5 thousand during the most recent reporting week, while the number of short positions decreased by 2,000. The net position consequently increased by 7.5 thousand contracts. For non-commercial traders, there are currently 134 thousand more buy contracts than sell contracts. It is now unclear why there haven't been any new COT reports released in the last two weeks. As a result, up to this point, we have had to work with the available data. Anyhow, the correction has been building for a while, so it is obvious even without news that the pair should keep falling.
Analysis of fundamental events
This week, it is not possible to highlight any reports. Who cares how many people are requesting unemployment benefits or how the University of Michigan's consumer mood index is doing? The movements were extremely calm this week, although these data can elicit a strong reaction if their values significantly depart from predictions. However, nothing of the sort was seen this week. According to our assessment, we must now wait for the upcoming inflation figures from the US and the EU. There is reason to believe that the consumer price index will start to decline, which could have an impact on the language used by ECB and Fed officials. Mood changes may start to happen in the market depending on the revised rhetoric. There haven't been any reports as of yet, but regulators' officials are still adamant that tightening is necessary, and the market has already anticipated all impending rises in key rates.
Trading strategy for the week of February 13–17:
1) The upward trend has not been canceled but is taken into consideration in the 24-hour timeframe as the pair has consolidated below the Kijun-sen line. Long positions are not currently important; the correction might last for some time. Growth may restart with targets of 1.1171 and 1.1270 if the key line is reversely overcome. This, however, is unlikely to occur the following week.
2) The sales of the pair of the euro and the dollar have gained significance. The initial target is a bit hazy. The downward movement might continue to the fourth level, where the Senkou Span B line also runs, or it might stop at the 38.2% Fibonacci level, which is 1.0609 (the Senkou Span B line also runs slightly lower). The euro currency, therefore, can decline but must surpass the level of 1.0609. It is possible to sell the pair cautiously.
Explanations for the illustrations:
Fibonacci levels, which serve as targets for the beginning of purchases or sales, and price levels of support and resistance (resistance/support). Take Profit levels may be close by.
Bollinger Bands, MACD, and Ichimoku indicators (standard settings)
The net position size of each trading category is represented by indicator 1 on the COT charts.
The net position size for the "non-commercial" category is shown by indicator 2 on the COT charts.
