Analysis of EUR/USD 5M
EUR/USD faced strong negative pressure on Thursday. The logic behind the pair's movements was quite ambiguous. On one hand, the market was selling the dollar on Wednesday, even though there were more reasons to buy it. Therefore, it was consistent for the pair to show a subsequent downward movement. On the other hand, the U.S. Producer Price Index was just published, showing a sharper slowdown than expected. The market tends to use formal reasons to sell the U.S. currency. However, traders considered the fact that the 0.1% slowdown does not influence the prospects of a Federal Reserve rate cut. Thus, the dollar strengthened throughout the day. The question is, what happens next?
Since the price approached its two recent lows (and did so quite significantly), we believe that a rebound with a 40-50 pip rise will follow. Then, logically and according to the current fundamental background, a new wave of decline should come next, and the price should be able to overcome the area of 1.0718-1.0733. This will help with the progress of the downward trend.
Two trading signals were formed on Thursday, and they mirrored each other. The price bounced twice from the area of 1.0797-1.0811. The first time, there was no downward movement, but the second time, the pair was down about 45 pips, overcoming the level of 1.0757 along the way. Thus, traders could have earned about 45 pips on a short position. The trade could be closed manually in the evening. We expect the pair to fall further over the next few weeks.
COT report:
The latest COT report is dated June 4. The net position of non-commercial traders has remained bullish for a long time, and we're still dealing with the same situation. The bears' attempt to gain dominance failed spectacularly. The net position of non-commercial traders (red line) has been decreasing in recent months, while that of commercial traders (blue line) has been increasing. However, we are now observing the opposite trend again. This indicates that buyers, not sellers, are gaining momentum once again. This might be a temporary phenomenon since the downward trend is still relevant.
We don't see any fundamental factors that can support the euro's strength in the long term, while technical analysis also suggests a continuation of the downtrend. Three descending trend lines on the weekly chart suggests that there's a good chance of further decline.
Currently, the red and blue lines are diverging again, which indicates that long positions for the euro have increased. During the last reporting week, the number of long positions for the non-commercial group increased by 4,300, while the number of short positions decreased by 6,000. Accordingly, the net position increased by 10,300. Nonetheless, the European Central Bank's decision to lower rates and strong US Nonfarm Payrolls may initiate a new wave of decline for the euro.
Analysis of EUR/USD 1H
On the 1-hour chart, the EUR/USD pair finally has a real chance to form a new downward trend. Yesterday, the market rectified the situation in favor of the dollar. We expect the euro to fall. The price failed to consolidate above the Senkou Span B line, which significantly increases the likelihood of a sustained decline. The only thing that might happen before the start of a new wave of decline is an upward pullback. After leaving the ascending channel and following a two-month rise in the euro, we insist that the single currency fall.
On June 14, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0836, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0852) and Kijun-sen (1.0811) 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 Stop Loss to breakeven 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 Friday, European Central Bank President Christine Lagarde will deliver a speech, and the U.S. docket will feature the University of Michigan Consumer Sentiment Index. We do not expect any important information from Lagarde since the ECB meeting recently took place and the market has already received all the necessary information. The Consumer Sentiment Index is not a highly crucial report, but if the actual value deviates significantly from the forecast, the market may show a notable 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;
