Analysis of EUR/USD 5M
EUR/USD continued its downward movement on Friday, after bouncing off the level of 1.0757. As a result, the price ended up around the support area of 1.0658-1.0669 by the end of the week. The price may bounce off this area for the second time, but now it has a descending trend line that supports the euro's further decline. The technical analysis does not only support the downward movement. The fundamental background does not also imply a strong rise for the euro. Over the past two weeks, it has worsened significantly. The European Central Bank has begun lowering its key rate and may continue to do so steadily, if not quickly. In regards to the Federal Reserve, the issue of the first rate cut remains open. The market is filled with optimism about this and expects the first rate cut in September. We believe that it will take place in December. If we're right, then the euro still has enough time to reach all the targets of the current downtrend.
The pair's decline on Friday could have been more significant than what we saw. European PMI data did not plummet, but it did turn out to be weaker than forecasts. On the other hand, the US indices proved to be stronger than expected. Therefore, the dollar could continue to rise during the US trading session. However, the market deemed that it was enough for the dollar to rise by just 10 pips. Overall, volatility remains very weak.
Speaking of Friday's trading signals, we can only take note of a bounce from the critical line, after which the price almost reached the 1.0658-1.0669 area, missing by just a few pips. Unfortunately, the pair rose by the end of the day, so one could earn a maximum of 15 pips on a short position. No other signals were formed during the day.
COT report:
The latest COT report is dated June 11. 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 miserably. The net position of non-commercial traders (red line) has been declining in recent months, while that of commercial traders (blue line) has been growing. But now we're seeing the opposite once again. This shows that buyers, not sellers, are currently gaining momentum again. This might be temporary since the downward trend is still valid.
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.
The red and blue lines are currently moving away from each other again, which indicates a build-up in long positions on the euro. During the last reporting week, the number of long positions for the non-commercial group decreased by 1,200, while the number of short positions increased by 23,000. Accordingly, the net position decreased by 14,200. We may witness the start of increasing bearish pressure. According to the COT reports, the euro has a lot of potential to fall.
Analysis of EUR/USD 1H
On the 1-hour chart, EUR/USD has started to form a new downward trend, which is part of the global trend. As before, we expect the single currency to fall. Volatility has once again dropped to absolute lows, making it quite difficult to conduct analysis and trading. This week, an upward correction may resume from the area of 1.0658-1.0669, but at the moment, sellers have a support line - the trend line. Therefore, to start a new bearish wave, the price must consolidate below the area of 1.0658-1.0669.
On June 24, 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 (1.0785) and Kijun-sen (1.0717) 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.
There are no significant events scheduled for Monday. In the morning, Germany will publish the Ifo Business Climate report, but this is of secondary importance. It may provoke a market reaction of 10-15 pips at most. Otherwise, we are likely to have another "boring Monday" and a dull week.
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;
