Analysis of EUR/USD 5M
The EUR/USD pair continued its upward correction on Friday, which began a day earlier. We cannot day that the macroeconomic background on Friday either supported the European currency or worked against it. More likely, it didn't have much influence on market sentiment. Or it might have influenced it only as a trigger, while the market's direction was determined independently. Let's briefly review the key macroeconomic indicators. Unemployment and retail sales data in Germany turned out to be neutral and certainly didn't contribute to the euro's growth. Inflation in the European Union slowed down more than expected, but at the moment, it doesn't matter much as there's no longer a significant correlation between inflation and interest rates. In the United States, only a few reports of secondary importance were released, which didn't have any significant impact on the market.
Several trading signals were generated throughout Friday. Initially, the price bounced off the 1.0574-1.0581 area and managed to move up about 30 pips. It's unlikely that traders were able to capture these pips, as the nearest target level was not reached. However, you could and should have set a break-even Stop Loss, which eventually closed the trade. Later on, the instrument returned to the 1.0574-1.0581 area and even settled below it, but this happened two hours before the market closed at the weekend. Clearly, opening a trade at that point was not advisable.
COT report
On Friday, a new COT report for September 26th was released. Over the past 12 months, the COT report data has been consistent with what's happening in the market. The net position of large traders (the second indicator) began to rise back in September 2022, roughly at the same time that the European currency started to rise. In the first half of 2023, the net position hardly increased, but the euro remained relatively high during this period. Only in the last two months, we have seen a decline in the euro and a drop in the net position, which we've been waiting for a long time. Currently, the net position of non-commercial traders is still bullish and this trend is likely to lose momentum soon.
Analysis of EUR/USD 1H
We have previously noted that the red and green lines have moved significantly apart from each other, which often precedes the end of a trend. This configuration persisted for over half a year, but eventually, the situation began to change. Therefore, we still stick to the scenario that the upward trend is over. During the last reporting week, the number of long positions for the "Non-commercial" group increased by 4,000, while the number of short positions increased by 7,600. Consequently, the net position decreased by 3,600 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 99,000, but the gap is narrowing, which is a positive sign. In principle, it is now evident even without COT reports that the European currency is set to extend its weakness. Now the COT reports support this scenario.
On the 1-hour timeframe, the pair maintains a downward trend but has begun to correct. We believe that the dollar will continue to advance in the medium term, but in the next few days or even weeks, technical euro's growth is possible. Overcoming the Kijun-sen line confirms the market's intention to make a slight correction. The nearest target is the Senkou Span B line.
On October 2nd, we highlight the following levels for trading: 1.0366, 1.0485, 1.0537, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, 1.1043, as well as the Senkou Span B (1.0689) and Kijun-sen (1.0553) lines. The Ichimoku indicator lines can shift during the day, so this should be taken into account when identifying trading signals. There are also auxiliary support and resistance levels, but signals are not formed near them. Signals can be "bounces" and "breakouts" of extreme levels and lines. Don't forget to set a breakeven Stop Loss if the price has moved in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.
On Monday, business activity indices in the manufacturing sectors for September will be published in the United States, the European Union, in particular, Germany. These are not the most important data because the PMIs will be in the second estimate. However, among them, there will be the ISM index in the United States, which is much more important than its counterparts. Also, today, Jerome Powell will deliver a speech in the second half of the day.
What's on charts
Price levels of support and resistance (resistance / support) are plotted by thick red lines, near which the movement may end. They are not sources of trading signals.
The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines transferred to the 1-hour timeframe from the 4-hour timeframe. They are strong lines.
Extreme levels are thin red lines, from which the price bounced or dipped earlier. They are sources of trading signals.
Yellow lines are trend lines, trend channels and any other technical patterns.
Indicator 1 on the COT charts means the size of the net position of each category of traders.
Indicator 2 on the COT charts means the size of the net position for the Non-commercial group.
