Analysis of EUR/USD 5M
EUR/USD continued to correct higher on Friday. The corrective phase has been intact for four consecutive days, although before that, the price fell for just over a day. Volatility remains quite low, partially explained by last week's weak fundamental and macroeconomic background. However, it's important to remember that the market moves and trades not only when there is significant news and reports. This week, there are several important events that could push traders to be more active.
In general, the downtrend persists. It is clear on the higher timeframes that the pair has been falling for over a month. However, the downward movement has been weak. Nevertheless, we're not concerned about this because the euro is still falling in line with our expectations. It would be strange to think that the euro should drop by 500-600 pips in just a couple of weeks.
On Friday, the only notable report was the second estimate of German inflation. It did not provoke any reaction since the first and second estimates were identical. In the second half of the day, the US suddenly released its monthly inflation report for December. However, there was no significant market reaction here either. The market tried to pretend that it was indifferent, but a 20-pip reaction is not exactly what traders expect.
No noteworthy technical signals on Friday. Throughout the day, the price only approached the level of 1.0757 but couldn't reach it. The rest of the time, it did not even attempt to get closer to important levels or lines. Therefore, there were no trading signals on Friday, so we did not bother to enter the market.
COT report:
The latest COT report is dated February 6. The net position of non-commercial traders has been bullish for quite some time. The number of long positions is much higher than the number of short positions. However, in recent weeks, the number of longs has been decreasing, while the number of shorts is increasing, which aligns with the euro's current movement and our expectations.
We believe that the euro should fall and the uptrend must end. During the last reporting week, the number of long positions for the non-commercial group increased by 2,000, while the number of short positions increased by 28,800. Accordingly, the net position fell by 16,600. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 62,000. The gap is quite large, but it is becoming smaller. Even without COT reports, it is clear that the euro should fall further.
Analysis of EUR/USD 1H
On the 1-hour chart, the downtrend persists. Since the US economy continues to show strong results and rarely disappoints, while the European economy remains stagnant, the euro may continue to fall further. In our opinion, nearly all the current factors indicate that the dollar will strengthen. In the first days of the new week, we expect the price to either consolidate below the critical line or bounce back from the Senkou Span B line. However, be cautious since the pair's movements are still very weak at the moment.
On February 12, we highlight the following levels for trading: 1.0581, 1.0658-1.0669, 1.0757, 1.0823, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, 1.1185, as well as the Senkou Span B line (1.0813) and the Kijun-sen (1.0762) lines. The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a breakeven Stop Loss if the price has moved in the intended direction by 15 pips. This will protect you against potential losses if the signal turns out to be false.
On Monday, several European Central Bank representatives, including Chief Economist Philip Lane, will speak. This may be interesting, but it is unlikely to have a direct impact on the euro's exchange rate. Several Federal Reserve officials will also speak, but we do not expect their comments to have a strong influence on the pair's movement.
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.
