Analysis of EUR/USD 5M
On Monday, EUR/USD immediately resumed the downside during the opening of the European trading session. During the Asian trading session, the pair tried to recover from the bullish correction it was in on Thursday and Friday. However, it quickly lost steam. At the same time, it is very difficult to attribute the euro's drop or the dollar's rise to macro data. In the morning, only two reports on business activity in the EU were released in their second estimates, and although they were very weak, they hardly differed from the initial estimates. So what could traders have reacted to? Information they already knew? The same goes for the second half of the day. The US ISM index was released, which turned out to be slightly better than expected, but by that time, the pair had already moved significantly downward. Therefore, it is clear that the ISM index was not the main reason for the dollar's rise.
Speaking of trading signals, yesterday started off poorly. A buy signal was formed around the 1.0581 level, which turned out to be false. A loss was incurred right away as the price settled below 1.0581. However, the pair only moved in one direction for the entire day, and it was advisable to manually close the short position around the 1.0485 level closer to the evening. The profit from this trade was about 80 pips, so traders were in a good position.
COT report:
On Friday, a new COT report for September 26th was released. Over the past 12 months, the COT report data has been consistent with what's happening in the market. The net position of large traders (the second indicator) began to rise back in September 2022, roughly at the same time that the European currency started to rise. In the first half of 2023, the net position hardly increased, but the euro remained relatively high during this period. Only in the last two months, we have seen a decline in the euro and a drop in the net position, which we've been waiting for a long time. Currently, the net position of non-commercial traders is still bullish and this trend is likely to lose momentum soon.
We have previously noted that the red and green lines have moved significantly apart from each other, which often precedes the end of a trend. This configuration persisted for over half a year, but eventually, the situation began to change. Therefore, we still stick to the scenario that the upward trend is over. During the last reporting week, the number of long positions for the "Non-commercial" group increased by 4,000, while the number of short positions increased by 7,600. Consequently, the net position decreased by 3,600 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 99,000, but the gap is narrowing, which is a positive sign. In principle, it is now evident even without COT reports that the European currency is set to extend its weakness. Now the COT reports support this scenario.
Analysis of EUR/USD 1H
On the 1-hour chart, the pair ended the bullish correction, broke through the last local low, and is ready to fall further. We believe that the dollar will continue to advance in the medium term, but we were expecting the euro to rise further. However, the market is following the downward momentum, just as it previously showed bullish bias for a long time.
On October 3rd, we highlight the following levels for trading: 1.0269, 1.0340-1.0366, 1.0485, 1.0537, 1.0581, 1,0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, as well as the Senkou Span B (1.0613) and Kijun-sen (1.0542) lines. The Ichimoku indicator lines can shift during the day, so this should be taken into account when identifying trading signals. There are also auxiliary support and resistance levels, but signals are not formed near them. Signals can be "bounces" and "breakouts" of extreme levels and lines. Don't forget to set a breakeven Stop Loss if the price has moved in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.
On Tuesday, European Central Bank Chief Economist Philip Lane will speak, and the US will release the JOLTS job openings report. We believe that this report can provoke a market reaction, but again, what for when the euro is already falling practically every day?
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.
