Analysis of EUR/USD 5M
The EUR/USD currency pair traded again on Friday as if at a funeral. Despite the release of several macroeconomic reports throughout the day, overall volatility was less than 30 pips. Consequently, the second estimate of European inflation, along with American reports on the construction sector and the University of Michigan's consumer sentiment index, were ignored. By the way, the most interesting consumer sentiment index showed a quite striking value for July. While traders expected 51 points, the actual figure was 54.4. Thus, both traders had an opportunity to trade, and the dollar had a chance to rise. However, we saw neither. Volatility remains weak, and the European currency still cannot get off its knees (even though it has everything it needs to do so). On the hourly timeframe, a flat condition essentially remains. Despite the pair breaking the level of 1.1461 last week, we see that the upward trend has not yet begun.
From a technical perspective, the pair maintains a minimal bullish sentiment and is located above the lines of the Ichimoku indicator. Therefore, at least a weak upward movement may continue. However, the price has effectively returned to the sideways channel of 1.1362-1.1461, and the upward movement in recent weeks has been so weak that it is hard to speak of it as a trend.
On the 5-minute timeframe, no trading signals were formed on Friday. At the start of the American trading session, the pair bounced off the critical line, but by then it was already clear there would be no movement, and the price was moving solely sideways. Thus, we do not see no reason to open trading positions.
COT Report
The latest COT report is dated July 14. The illustration on the weekly timeframe clearly shows that the net position of non-commercial traders remains bullish but has significantly decreased due to geopolitical events. Traders have been getting rid of the European currency in favor of the U.S. dollar in recent months. Donald Trump's policy has not changed, but the dollar has temporarily acted as a "reserve currency." However, this process may have already been completed.
We still do not see any fundamental factors that would strengthen the European currency, but there are plenty of factors that could cause the American dollar to fall. The war in the Middle East made the dollar temporarily super-attractive, but once this factor's "shelf life" expires, everything will return to its previous state. And it may have already expired. In the long term, the euro could fall to the level of $1.08 (the trend line), but the upward trend will still remain relevant. Over the past months of dollar growth, the pair has not come significantly closer to this line.
The positioning of the red and blue lines of the indicator indicates parity between bulls and bears. Over the last reporting week, the number of longs in the "Non-commercial" group increased by 6,900, while the number of shorts increased by 3,300. Consequently, the net position increased by 3,600 contracts over the week.
Analysis of EUR/USD 1H
On the hourly timeframe, a corrective upward trend is forming within a two-month downward trend, which resembles a flat much more. The situation in the Middle East remains tense and is not improving. The market continues to ignore many favorable factors for the euro, which is why the European currency cannot show significant growth. The movements of recent weeks appear to be preparation for a new decline...
On July 20, we highlight the following levels for trading — 1.1234, 1.1274, 1.1362, 1.1461, 1.1536-1.1542, 1.1585, 1.1657-1.1666, 1.1750-1.1760, 1.1786, 1.1830-1.1837, as well as the Senkou Span B line (1.1417) and the Kijun-sen (1.1430). The lines of the Ichimoku indicator may shift throughout the day, which should be taken into account when determining trading signals. Don't forget to set a Stop Loss order to break even if the price has moved in the correct direction by 15 pips. This will protect against potential losses if the signal turns out to be false.
On Monday, no significant events or reports are scheduled in the U.S. and the European Union. Traders will have nothing to react to today. Volatility may again be minimal.
Trading Recommendations:
Today, traders may consider short positions with a target of 1.1362 if the price consolidates below the Senkou Span B line. Long positions can be opened with targets of 1.1461 and 1.1480 if the pair bounces off the lines of the Ichimoku indicator.
Explanations for Illustrations:
Support and resistance price levels – thick red lines around which the movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines – lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour timeframe. They are strong lines.
Extreme levels – thin red lines from which the price previously bounced. They are sources of trading signals.
Yellow lines – trend lines, trend channels, and any other technical patterns.
Indicator 1 on COT charts – the size of the net position of each category of traders.
