Analysis of EUR/USD 5M
EUR/USD continued to fall on Friday. Over the past one and a half weeks, the euro has been consistently decreasing, which fully aligns with our expectations and forecasts. This is the kind of movement we were expecting. Last week, the US released a lot of important data, and some reports turned out to be weaker than forecasted. However, this time the dollar faced no problems and the uptrend persisted throughout the week. On Friday, the US published four important reports, two of which (the crucial ones), NonFarm Payrolls and the unemployment rate, turned out to be significantly more favorable than expected. Therefore, the dollar continued to rise, and this movement fully corresponds to the macroeconomic background.
We have already warned you that it is too early to write off the American economy and the dollar. Despite a weak November, the US economy is still quite strong, and expecting a series of disappointing reports every month is impractical. In the medium term, we expect the dollar's broad strength. Moreover, a descending channel has formed, clearly indicating a downtrend.
Speaking of Friday's trading signals, there is essentially no point in analyzing them. All the signals were generated after the release of US reports. At this time, the pair started "flying" in different directions, so it was difficult to react in time to any signal. The price crossed the level of 1.0757 five times, and you shouldn't have tried to execute any of these signals. The movements were too chaotic, and the signals were too weak.
COT report:
The latest COT report is dated December 5. 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. In the last three months, we have seen a decline in the euro and a drop in the net position, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can draw a clear conclusion: the pair is correcting higher, but the corrective cycle may have finally come to an end.
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. Currently, after a small correction, these lines are diverging again. Therefore, we stick to the scenario that the upward trend should come to an end. During the last reporting week, the number of long positions for the "non-commercial" group increased by 2,200, while the number of short positions fell by 6,900. Consequently, the net position increased by 9,100. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 152,000. In principle, it is now evident even without COT reports that the euro should continue to fall.
Analysis of EUR/USD 1H
On the 1-hour chart, the pair continues to trade lower, as expected over the past few weeks. Currently, the euro is falling almost every day, as it hardly pays attention to the US reports that elevated it to a pedestal two weeks ago. This is a positive development, indicating that the market is starting to restore the fair value of the pair.
At the moment, we can only recommend selling. If the pair consolidates above the descending channel on the hourly time frame, then a correction may occur up to the Senkou Span B line. However, once the corrective phase ends, we expect the pair to fall and the US currency to strengthen.
On December 11, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0806, 1.0889, 1.0935, 1.1043, 1.1092, 1.1137, as well as the Senkou Span B line (1.0911) and Kijun-sen (1.0784) 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, there are no important events or reports lined up in the United States or the European Union. Most likely, we can expect dull movements, but later in the week, there will be a huge number of important events, so we can look forward to interesting things.
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.
