Analysis of EUR/USD 5M
During the third (hour), EUR/USD could have started a new downtrend on the hourly time frame, but unfortunately, economic reports let it down. We mentioned that the second estimate of the US GDP should not be considered an important report. Typically, the market ignores these estimates altogether. However, in this case, this particular report played against the dollar, and the prospective decline ended very quickly.
GDP increased at a 3.2% annualized rate last quarter, revised slightly down from the previously reported 3.3% pace. This is actually a minor change. However, in conditions of low volatility and absence of fundamentals and macroeconomics, the market decided to react to this report. And the dollar fell. It didn't fall much, but completely offset its growth in the first half of the day. Therefore, it was not possible to consolidate below the Senkou Span B line. Plans of forming a downtrend on the hourly timeframe is put on hold for now.
In fact, nothing terrible will happen if the correction continues for some time. However, the trendline was broken, so we don't expect a strong rise from the euro. Of course, the euro may be going through the same circumstances as the pound, which doesn't want to fall even when all the necessary reasons are already there. But in this case, we won't be able to do anything about it.
Yesterday's volatility was 50 pips. Two sell signals were generated. First, the pair settled below the level of 1.0823, but naturally could not reach the Senkou Span B line. Then there was a breakthrough of the critical line, but the upward movement could not develop either. Thus, the Stop Loss worked at break even for the first trade, and the second buy signal should not have been executed since it formed almost in the evening.
COT report:
The latest COT report is dated February 20. The net position of non-commercial traders has been persistently bullish for quite some time. However, at the same time, the net position of non-commercial traders has been decreasing in recent months, while that of commercial traders has been increasing. This tells us that the mood is turning bearish, as speculators are increasing the volume of short positions on the euro. We don't see any fundamental factors that can support the euro's growth in the long term, while technical analysis also points to the formation of a downtrend.
We have already drawn your attention to the fact that the red and blue lines have significantly diverged, often preceding the end of a trend. Currently, these lines are moving towards each other (indicating a trend reversal). Therefore, we believe that the euro will fall further. During the last reporting week, the number of long positions for the non-commercial group increased by 2,300, while the number of short positions decreased by 12,800. Accordingly, the net position increased by 10,500. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 68,000 (previously 52,000). Thus, commercial traders continue to sell the euro.
Analysis of EUR/USD 1H
On the 1-hour chart, the uptrend remains intact, but we are skeptical about it. In our opinion, all the factors currently suggest that the dollar will strengthen. Therefore, we expect the price to consolidate below the Senkou Span B line and the euro to revive the downward movement. The nearest target is the area of 1.0658-1.0669. The ascending trendline has been broken, but yesterday, weak US data stopped the euro from falling.
On February 29, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0823, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0792) and Kijun-sen (1.0836) 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 Thursday, Germany and the United States will publish comprehensive sets of economic reports. First of all, pay attention to the German inflation report, which may be crucial for the European Central Bank's monetary policy. Other reports on retail sales and the unemployment rate may also provide impetus. The US docket will feature the Personal Consumption Expenditures Price Index and the personal income/expenditure of American consumers. These reports may provoke a slight market reaction.
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.
