Analysis of EUR/USD 5M
EUR/USD ended the week with substantial gains on Friday. There were no significant imports or events in the European Union or the United States. So what could traders pay attention to? The inflation report? Its second estimate did not differ from the first... The report on building permits issued in the U.S.? This report rarely provokes a market reaction even in the case of a significant deviation from the forecast. Thus, all of the macroeconomic events had almost no impact on the pair's movement. Nevertheless, the euro did not start a bearish correction after it experienced a significant surge on Tuesday, which is hardly logical. Yes, the market had a reason to sell the dollar, but not as substantial as we've seen.
Only one trading signal was formed on Friday. It took several hours at the junction of the European and US sessions, indicating its weakness. Nevertheless, the pair breached the level of 1.0868, so formally, traders could open long positions. After this signal was formed, the price managed to move up by a maximum of 20 pips, and the trade should have been closed manually. A small profit was obtained, but it could have been much better.
COT report:
On Friday, a new COT report for November 7 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 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 1,700, while the number of short positions fell by 2,000. Consequently, the net position increased by 3,700. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 89,000. 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 another corrective phase. Two out of the five phases in the current correction were triggered by weak U.S. reports. Therefore, for now, we can say that reports have been boosting the euro, U.S. data in particular, as the eurozone reports have been weak. For now, we need to wait for the pair to breach the Senkou Span B and Kijun-sen lines in order to identify the recommencement of the downtrend in the medium-term.
On November 20, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, 1.1012, 1.1092, 1.1137, as well as the Senkou Span B line (1.0637) and Kijun-sen (1.0814). 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, there are no significant events planned in the European Union and the United States. EUR/USD will likely see low volatility, and the price may start a bearish correction. However, overnight trading has already shown that the euro may appreciate today.
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.
