Analysis of EUR/USD 5M
EUR/USD showed little more than a flat and low volatility on Thursday, not exceeding 50 pips. Even though the results of the European Central Bank meeting were announced yesterday, it had no impact on investors' willingness to trade more actively. Despite the release of two crucial reports in the United States, they also had no effect on the pair's movement. The pair moved around 30 pips in different directions. As a result, the most important day in terms of fundamentals and macroeconomics turned out to be the dullest and least appealing. The ECB left the key interest rates unchanged, and ECB President Christine Lagarde did not announce anything new or significant. Therefore, the market had nothing to react to. Nevertheless, the US reports were expected to fuel the dollar's growth, which did not happen.
Since the movements were very weak, the trading signals were not appealing. During the European session, the price rebounded from the 1.0537 level but couldn't even move in the intended direction by 15 pips. This trade should have been closed manually before the start of the US session. In general, it was better not to trade during the US session, not because the volatility wasn't high but due to the lack of movement and everything was just illogical. In any case, there was a big chance of witnessing significant movements and frequent reversals, so it was not advisable to take risks.
COT report:
On Friday, a new COT report for October 17th 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 euro 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.
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 ultimately, the lines have started moving closer to each other. 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 6,800, while the number of short positions fell by 100. Consequently, the net position increased by another 6,800 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 82,000, but the gap is narrowing. In principle, it is now evident even without COT reports that the euro is set to extend its weakness.
Analysis of EUR/USD 1H
On the 1-hour chart, the pair exhibited two waves of the bullish correction, afterwards it drifted sharply lower and breached the trendline. Therefore, we expect the euro to resume its decline. There is also a possibility of entering consolidation, which involves alternate movements that do not align well with the fundamentals or macroeconomics. However, this is a backup scenario. For now, we expect the pair to fall towards the recent local low.
On October 27, we highlight the following levels for trading: 1.0269, 1.0340-1.0366, 1.0485, 1.0530, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, along with the Senkou Span B (1.0568) and Kijun-sen (1.0609) 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 Friday, there are no significant events or reports scheduled in the European Union. From the US, traders may look to the release of reports on consumer sentiment, personal income and personal spending. We wouldn't be surprised if we see stronger movements today than we did yesterday...
Description of the chart:
Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;
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 is the net position size for each category of traders;
Indicator 2 on the COT charts is the net position size for the Non-commercial group.
