Analysis of EUR/USD 5M
EUR/USD continued to push higher on Friday. The growth was due to the U.S. data. We warned you that the reports on unemployment and non-farm payrolls might be even more important and impactful than central bank meetings, simply because the meetings lacked any intrigue, while the reports could have a significant impact. In practice, this is precisely what happened. The unemployment rate in the United States increased, the number of non-farm payrolls was significantly lower than expected, and the ISM non-manufacturing PMI unexpectedly dropped a few points. As a result, the massive dollar sell-off was not surprising at all. Moreover, it aligns perfectly with the technical picture. The euro simply formed another leg of the upward correction. Now, a medium-term downtrend may resume.
Unfortunately, the movement was so sharp and sudden that there was no time for the pair to generate good signals. In general, only one trading signal was generated around the 1.0658-1.0669 range, but it occurred precisely during the release of U.S. data. It was extremely difficult and nearly impossible to get into the market based on this one signal. Perhaps someone managed to do so, and they could have earned a profit of 30-40 pips, which is still better than nothing.
COT report:
On Friday, a new COT report for October 31st 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 three months, we have seen a decline in the euro and a drop in the net position, as we anticipated. 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 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 decreased by 4,700, while the number of short positions fell by 4,800. Consequently, the net position remained mostly unchanged. The number of BUY contracts is still 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. However, the corrective phase has not yet ended.
Analysis of EUR/USD 1H
On the 1-hour chart, the pair exhibited four corrective phases, which means that it might end in the near future. Today, the EUR/USD did not fall when the trading session started, so we may see some more minor upward movement for a while. However, in general, we believe the pair is ready to start a downward movement. All we need are good signals to confirm the downtrend.
On November 6, we highlight the following levels for trading: 1.0340-1.0366, 1.0485, 1.0530, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, 1.1043, as well as the Senkou Span B (1.0609) and Kijun-sen (1.0632) 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, the final assessments of the Services PMI for October will be published in the eurozone and Germany. These are secondary data. In the United States, there are no significant events planned. If the pair starts to fall today, this could reveal the market's real sentiment regarding the revival of the downtrend in the medium-term. This week is expected to be quite uneventful in terms of fundamentals and macroeconomics.
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.
