5M chart of EUR/USD
The EUR/USD pair traded quite calmly on Friday, virtually flat until US reports on Non-Farms and unemployment came out, which we called the most important reports of the week. In practice, that's exactly how it was, these two reports provoked a strong fall in the dollar. However, on closer examination, it becomes clear that the level of unemployment fell, not rose, so it could not provoke a fall in the dollar. The NonFarm Payrolls report was weaker than forecasts, but not by much. The report could not have disappointed dollar buyers enough to make the US currency fall by 100 points. The May value of the report was also revised downwards, but even after that it still turned out to be higher than forecasts.
In our opinion, the dollar fell too sharply, and the market did not take into account a single positive factor, focusing only on the negatives. Considering that the euro currency could not show growth all last week, we believe that this week will see a reverse movement and Monday looks like an appropriate day for such a move.
There were several trading signals on Friday, but the pair was in the area where two important lines of the Ichimoku indicator and two levels lay. The buy and sell signals that formed immediately at the opening of the US trading session should not have been worked out, as volatility sharply increased at this time, and the market reaction could be anything. Only the last buy signal after overcoming the 1.0943 level could have been executed, but it was formed too late in time.
COT report:
On Friday, the new COT report for July 3 was released. Over the past 10 months, COT data has been in line with developments in the market. The net position of large traders (the second indicator on the chart) has been on the rise since September 2022. The euro started to show strength approximately at the same time. For the last 5 months, the net position is no longer growing, and the euro is not rising either. Currently, the net non-commercial position is bullish and keeps growing further. Meanwhile, the euro is still strong against the dollar.
We have repeatedly pointed out that a relatively high value of the net position suggests a potential end of the uptrend. This is shown by the first indicator, where the red and green lines have significantly diverged, which often precedes a trend reversal.
During the last reporting week, the number of long positions held by non-commercial traders decreased by 2,700 while the number of short positions fell by 500. As a result, the net position dropped by 2,200, which is very small. The number of long positions still exceeds the number of short ones by 143,000, an almost threefold gap. In principle, even without the COT reports, it's clear that the euro should fall, but the market is in no hurry to sell. Perhaps it fears a stronger increase in the ECB rate.
1H chart of EUR/USD
In the 1-hour chart, the pair has overcome the descending trend line, breaking the downtrend. We don't think the euro will start an uptrend anytime soon. Most likely, it will continue to consolidate in the area of 1.05-1.11. Although the dollar may have factors for decline this week, as US inflation threatens to slow down to 3.1%, which will further reduce the likelihood of another rate hike.
On July 10, trading levels are seen at 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0943, 1.1012, 1.1092, as well as the Senkou Span B (1.0924) and Kijun-sen (1.0903). Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance although no signals are made near these levels. Signals could be made when the price either breaks or bounces from these extreme levels. Do not forget to place Stop Loss at the breakeven point when the price goes by 15 pips in the right direction. In case of a false breakout, it could save you from possible losses.
No important events lined up in the EU, while Federal Reserve officials Raphael Bostic, Mary Daly, and Loretta Mester will speak. In our opinion, more important speeches will take place after the release of the US inflation report.
Indicators on charts:
Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals.
Kijun-sen and Senkou Span B are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines.
Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals.
Yellow lines are trend lines, trend channels, and other technical patterns.
Indicator 1 on the COT chart is the size of the net position of each trader category.
Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.
