The EUR/USD pair traded strictly between the levels of 1.0764 and 1.0785 on Friday. Trader activity was nonexistent, with horizontal movement observed all day. The zone 1.0764–1.0785 is part of the zone 1.0764–1.0806. Bulls will find it very difficult to overcome these levels. Therefore, I expect further growth of the European currency only after closing above 1.0806. The upward trend channel continues to characterize traders' sentiment as "bullish." After closing below this channel, I expect a significant decline in the euro.
The wave situation remains unchanged. The last downward wave failed to approach the low of the previous wave, while the new upward wave had already broken the peak of the previous wave. Thus, a "bullish" trend has formed, but its prospects raise doubts for me. In the last 2-3 weeks, the news background has supported bull traders, but will it continue to support them further? This is a big question, as the European Union's economy is going through challenging times, and the ECB is ready to start easing monetary policy earlier than the Fed, which already has a much lower interest rate.
The news background on Friday was very weak. There was no news in Europe, and the University of Michigan's consumer sentiment index was released in America. This indicator in May was only 67.4 points against expectations of 76-78 points. Thus, this report also did not show a high value, and the dollar was fortunate that its decline did not continue. Despite weak statistics from the US recently, I still expect a new downward trend for EUR/USD. The trend has been ongoing for four weeks and cannot be called strong. The weakening of the American currency is temporary, and traders will soon remember the ECB's rate cut in June. They will also remember that inflation in the US will only allow the Fed to count on easing monetary policy later.
On the 4-hour chart, the pair returned to the upper line of the "wedge." A new rebound from this line will again favor the US dollar and a new downward process towards the corrective level of 23.6%-1.0644. Consolidation above the "wedge" will increase the probability of continued growth towards the next Fibonacci level of 50.0%-1.0862 and change the "bearish" trend to "bullish." There are no imminent divergences observed today.
Commitments of Traders (COT) report:
During the last reporting week, speculators opened 3409 long contracts and closed 7958 short contracts. The sentiment of the "Non-commercial" group turned "bearish" a couple of weeks ago, but now there is a balance between bulls and bears. The total number of long contracts held by speculators now stands at 170 thousand, while short contracts amount to 166 thousand. However, the situation will continue to change in favor of bears. In the second column, the number of short positions has increased from 140 thousand to 166 thousand over the last three months. Long positions decreased from 202 thousand to 170 thousand during the same period. Bulls have dominated the market for too long, and now they need a strong news background to resume the "bullish" trend. A series of poor reports from the US have supported the euro, but in the long run, more is needed.
News Calendar for the US and EU:
On May 13th, the economic events calendar contains no interesting entries. The influence of the news background on traders' sentiment for the remainder of the day will be absent.
Forecast for EUR/USD and trader recommendations:
New pair sales are possible upon closing below the level of 1.0764 on the hourly chart, with a target at the lower line of the upward corridor. I would only consider buying the euro once the pair consolidates above 1.0806 on the hourly chart, with targets at 1.0840 and 1.0874. It's also possible to buy on a rebound from the lower line of the upward corridor.
