Analysis of EUR/USD 5M
EUR/USD edged up on Thursday. The chart may suggest that the upward movement was strong; however, in reality, the pair has moved no more than 60 pips over the past day. The price is still trading within the ascending channel, so the upward trend, which has been ongoing for three weeks now, persists. Take note that the current rise is part of a correction against a significant decline, and this correction seems to have no end in sight. Sometimes there are reasons for this, as the latest US data disappointed the dollar bulls. But sometimes (like yesterday), the euro had no reason to rise.
The only event was the Bank of England meeting, which has a somewhat indirect relationship to the euro. However, let's assume that the euro has a strong connection to the pound, so the single currency also reacted to the results of this meeting. But the euro and the pound should have only strengthened if the central bank signaled hawkish decisions and statements, which is not the case. On the contrary, BoE Governor Andrew Bailey said that inflation is decreasing as planned and that the BoE could lower the key rate as early as June. He only raised the prospect of a June rate cut, but at least this was part of the discussion, not keeping rates at their peak due to high inflation. We believe that the market should have been selling the pound and, consequently, the euro.
The pair generated good signals on Thursday. First, a sell signal was formed near the critical line, which brought traders about 10 pips of profit, as the position needed to be manually closed before the BoE meeting. Then, the pair surpassed the level of 1.0757, so traders could open long positions. If they closed them in the evening, they gained another 10 pips of profit. It's not much, but it's better than nothing.
COT report:
The latest COT report is dated April 30. The net position of non-commercial traders has been bullish for quite some time, but now the situation has finally changed. 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. This shows that market sentiment is turning bearish, as speculators increasingly sell the euro. Currently, their positions coincide in terms of volume. We don't see any fundamental factors that can support the euro's strength, while technical analysis also suggests a downtrend. Three descending trend lines on the weekly chart indicate that there's a good chance of sustaining the decline.
The red and blue lines have crossed, and now bears may have a significant advantage. So we strongly believe that the euro will fall further. During the last reporting week, the number of long positions for the non-commercial group decreased by 100, while the number of short positions decreased by 3,200. Accordingly, the net position increased by 3,100. Overall, both the euro and the net position continue to decline. The number of buy contracts is now lower than the number of sell contracts among non-commercial traders by 7,000.
Analysis of EUR/USD 1H
On the 1-hour chart, the EUR/USD pair has been going through a weak bullish correction against a global downward trend for three weeks now. Since expectations for a Federal Reserve rate cut in 2024 have significantly decreased, the US currency should rise in the medium term. We still expect the price to consolidate below the ascending channel, and after that traders may consider selling again. Targets in the area of 1.00-1.04 remain relevant.
On May 10, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0836, 1.0886, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0734) and Kijun-sen (1.0770) 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, the euro area economic calendar is basically empty, while the US docket will feature a report on consumer sentiment from the University of Michigan. It may provoke a market reaction, as there are no other news and events at the moment. However, we are unlikely to see strong movements and high volatility today.
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;
