Analysis of EUR/USD 5M

The EUR/USD pair again traded lower on Thursday. In principle, the instrument has been following the overall downtrend in recent weeks. The currency pair has been sliding down slowly but surely, but the slide is often interrupted by upward retracements. Yesterday, the fall began in the European trading session and continued in the American one, although macroeconomic statistics were not unambiguously in favor of the US dollar. The US currency owes its strength to solid fundamentals, so the market is ready to buy it, even though the macroeconomic background is not the best. To be more precise, the report on durable goods orders was worse than expected, and claims for unemployment benefits were better. After the release of these reports, the dollar fell for an hour but then resumed its growth. Personally, I support the bullish outlook for the US currency regardless of the background.

The instrument provided only two trading signals yesterday, and both were formed at the opening of the European session. In the early hours, the price settled above 1.0868, but this buy signal turned out to be false. Therefore, positions brought in a loss of about 18 pips. The next sell signal turned out to be much more successful, the price dropped to 1.0806 by the end of the day, which made it possible to take about 40 pips of profit, cover the loss on the first trade, and stay in positive territory at the end of the day. The pair again traded with low volatility yesterday, so one could not count on a high level of profit.

COT report

On Friday, the new COT report for August 15 was released. Over the past 11 months, COT reports have been in full agreement with what is happening in the market. The illustration above clearly shows that the net position of large players (the second indicator) began to grow in September 2022. At about the same time, the European currency began to grow. In the last 6-7 months, the net position has practically not increased, but the euro remains at its highs and does not fall. At this time, the net position of non-commercial traders is clearly bullish and the European currency continues to rise in value against the US dollar in the long term.

Another factor to bear in mind is that a fairly high value of the net position allows us to assume the end of the uptrend. This scenario is suggested by the first indicator, on which the red and green lines have moved far from each other. This often precedes the end of the trend. During the last reporting week, the number of buy contracts for the non-commercial group increased by 4.4K, while the number of short positions declined by 5.6K. Accordingly, the net position increased again, by 10.0K contracts. The number of buy contracts is higher than the number of sell contracts for non-commercial traders by 160K. This is a very large gap: the difference is more than three times. In principle, now, even without COT reports, it is obvious that the European currency is expected to decline, but the market is still in no hurry to sell.

Analysis of EUR/USD 1H

In the 1-hour timeframe, the pair exited the sideways channel where it spent two weeks, but the downward movement is still sluggish. The European currency could make a new attempt to correct, but it has no grounds for stronger growth. Volatility may remain weak until the end of the week as there will be a few important fundamental and macroeconomic events. Even the speeches by Lagarde and Powell may be neglected by the market.

On August 25, we highlight the following levels for trading: 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0935, 1.1043, 1.1092, 1.1137, as well as Senkou lines Span B (1.0953) and Kijun-sen (1.0858). Ichimoku indicator lines can shift during the day, which should be taken into account when recognizing trading signals. There are also auxiliary support and resistance levels, but no signals are formed near them. Signals can be bounces, dips, and overcoming extreme levels. Do not forget about placing a Stop Loss order at breakeven if the price has gone in the right direction for 15 pips. This will protect against possible losses if the signal turns out to be false.

Today, the economic calendar contains no significant macroeconomic reports. We do not believe that the German GDP in the third estimate or the consumer sentiment index from the University of Michigan will trigger a strong market response. There will also be speeches by Christine Lagarde and Jerome Powell at the Jackson Hole symposium and market sentiment will depend on what they say.

What's on charts

Price levels of support and resistance (resistance / support) are plotted by thick red lines, near which the movement may end. They are not sources of trading signals.

The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines transferred to the 1-hour timeframe from the 4-hour timeframe. They are strong lines.

Extreme levels are thin red lines, from which the price bounced or dipped earlier. They are sources of trading signals.

Yellow lines are trend lines, trend channels and any other technical patterns.

Indicator 1 on the COT charts means the size of the net position of each category of traders.

Indicator 2 on the COT charts means the size of the net position for the Non-commercial group.