Analysis of EUR/USD 5M
EUR/USD eventually remembers logic and common sense on Thursday. Just like on Wednesday, the pair bounced downwards and almost completely nullified the previous day's gains. However, this did not affect the technical picture in any way. The price is still within the ascending channel, as it tested the critical line but it failed to overcome this mark. Therefore, the euro could still rise and continue the uptrend.
At the same time, the last upward spiral has clearly dragged on. Earlier, we mentioned that the three-month bullish correction has kept going, and now we're saying that the final leg has taken longer than expected. Altogether, this suggests that the euro continues to rise in general, although it is only supported by technical factors.
Naturally, there were no fundamental events or economic reports yesterday. To be more precise, the U.S. released a report on initial jobless claims, but its value hardly deviated from the forecasts, so there could not have been any strong reaction to it. The dollar edged down at the beginning of the U.S. trading session, but it was not in response to this report.
Speaking of trading signals, a decent entry point for short positions was formed during the European session, but it had to be closed during the U.S. session as the price sharply moved higher. Closer to the evening, another sell signal was formed around the level of 1.1092. Two short positions were profitable, while one long position resulted in a loss.
COT report:
The latest COT report is dated December 19. 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, these lines are diverging again. Therefore, we support the scenario where the euro should fall and the upward trend must end. During the last reporting week, the number of long positions for the non-commercial group decreased by 23,800, while the number of short positions increased by 8,900. Consequently, the net position decreased by 32,700. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 115,000. The gap is significant, and even without COT reports, it is evident that the euro should continue to fall.
Analysis of EUR/USD 1H
On the 1-hour chart, EUR/USD continues its strong and steady upward movement. We believe that the euro has risen very high, but it is still growing within the channel. Therefore, the only thing we can do right now is to follow the trend. If the price consolidates below the channel, it could bring in the long-awaited bearish reversal.
Today, we find it better to consider new longs if the price bounces off the Kijun-sen line. In this case, the upward movement may resume with 1.1137 as the target, which has already been tested. However, there is a good chance to extend the decline if the price consolidates below the Kijun-sen line and the ascending channel. In this case, it become reasonable to sell with targets at 1.1006 and 1.0935.
On December 29, we highlight the following levels for trading: 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, 1.1185, 1.1234, 1.1274, as well as the Senkou Span B (1.0877) and Kijun-sen (1.1060). 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 won't be any important events or reports. Therefore, the movements will be "purely technical" once again.
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.
