Analysis of EUR/USD 5M
EUR/USD tried to start a new downward movement on Wednesday, which would have been absolutely logical within the framework of a new correction. However, the first level in the price's path to the downside stopped the decline. The rebound from the level of 1.0935 turned out to be perfectly accurate, and we will discuss this signal. In general, we can say that the pair's movements on Wednesday were quite illogical. On the one hand, there were no important macroeconomic and fundamental events in both the United States and the eurozone, so there was no need to expect strong movements. On the other hand, once again this is a situation where the news reports support the euro, while traders simply ignore the news in favor of the dollar. We believe that the euro doesn't have any grounds to support further growth after it has already appreciated by 550 pips in the last two months. However, this is the market, and its participants can trade as they please. So far, there are no strong signals for a trend reversal.
Since the price continues to stay above the Ichimoku indicator lines, an upward movement is more likely at the moment. However, we remind you that any trend will eventually end, so we are waiting for signals of a reversal. Speaking of trading signals, there was only one. At the beginning of the US trading session, the price bounced off the level of 1.0935, and traders had to open long positions. As of Wednesday evening, the price moved in the right direction by 20-30 pips. It's not much, but volatility was weak, so it was very difficult to expect a large profit.
COT report:
The latest COT report is dated December 12. In the first half of 2023, the net position of commercial traders hardly increased, but the euro remained relatively high during this period. Then, the euro and the net position both decreased for several months, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can conclude that the pair is correcting higher, but the correction cannot last long because it is still a correction.
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 decreased by 3,800, while the number of short positions increased by 1,100. Consequently, the net position decreased by 4,900. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 148,000. 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, EUR/USD sharply increased last week and tested the psychological level of 1.1000. We believe that the euro has risen very high already, but this week the price is increasing again instead of falling, although it has no good reason to do so. Therefore, we can only follow the trend's direction right now.
The price bounced off the area of 1.0872-1.0889, and then from the level of 1.0935. Traders can continue to hold long positions with 1.1006 as the target. A rebound from this level will likely trigger a decline, and we can consider potential opportunities to sell with 1.0935 as the target. We also recommend selling in case of consolidation below the level of 1.0935 with targets at 1.0889 and the Senkou Span B line.
On December 21, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, as well as the Senkou Span B line (1.0867) and the Kijun-sen (1.0949). 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 Thursday, there are no important reports or events lined up in the European Union. The US docket will feature the third estimate of the Q3 GDP report and unemployment claims. A deviation from the GDP value of 5.2% may trigger a market reaction.
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.
