Forex Analysis & Reviews: 05.07.2022 - Forecast for EUR/USD on July...

05.07.2022 02:15 PM

Forecast for EUR/USD on July 5. The euro collapsed catastrophically.

On Monday, the EUR/USD pair traded near the corrective level of 200% (1.0430). It appeared that the European currency would not be able to continue its downward trend this week, as indicated by the senior charts. Monday in the United States was also a holiday (Independence Day). On Tuesday, however, traders anticipated a straightforward surprise. The European currency fell sharply in the morning and dropped 140 pips over two hours. The only background information available was the June business activity index in the service sector. And it must be addressed in greater detail for it to be understood that it has nothing to do with the euro's fall into the abyss. The preliminary and final values of the business activity index are published each month. Typically, the final one coincides exactly with the preliminary one, so traders should generally react to the preliminary one. This time it was the same. After a value of 56.1 in May, the indicator was 53 in June. The initial index value was 52.8.

Thus, the final value, which was released this morning, was slightly better than the preliminary one. If the euro currency had reacted to this report, it should have been with growth, not a decline. However, even if you close your eyes right now, the euro's decline began one hour before the release of the PMI index. Therefore, I believe there is no connection between this index and the euro's demise. It turns out that traders waited several weeks before resuming mass sales of the euro in the most unexpected manner possible. Even when examining the 4-hour chart, nothing out of the ordinary occurred. The decline began well before today, and the prevailing sentiment among investors remains "bearish." Thus, the most surprising aspect of the euro's decline today was no significant background information.

On the 4-hour chart, the pair reversed in favor of the US dollar and continues to fall towards the correction level of 127.2% (1.0173). Fixing the pair's rate above the downward trend corridor, which continues to characterize traders' "bearish" sentiment, will allow us to count on the euro currency's growth in the direction of the corrective level of 76.4% (1.1041). There are currently no maturing divergences observed in any indicator.

Report on Commitments of Traders (COT):

Speculators closed 6,140 long contracts and 11,149 short contracts during the previous reporting week. It indicates that the "bearish" sentiment of the major market participants has weakened slightly but remains "bearish." The total number of long contracts held by speculators is 189 thousand, and the number of short contracts is 200 thousand. The difference between these figures is very small, but it is not in favor of the bulls. Most "non-commercial" traders have recently maintained a "bullish" outlook on the euro, which has not helped the euro currency. Recent COT reports indicate that new sales of the EU currency may follow, as speculators' sentiment has shifted from "bullish" to "bearish" over the past few weeks. The Fed and the ECB have not provided positive updates regarding the euro.

News calendar for the United States and Europe:

EU - Index of service sector business activity (08:00 UTC).

On July 5, the economic event calendars of the European Union and the United States are nearly empty. I have previously stated that the index of business activity in the service sector could not have precipitated a 140-pip decline in the euro. There are no other noteworthy events scheduled for today. Therefore, the information context's effect on traders' sentiment will be absent.

EUR/USD forecast and trader recommendations:

I suggested selling the pair on the hourly chart when it anchored below 1.0430 with a target of 1.0315. This threshold has been attained. New sales – under 1.0315 at the close, with a target of 1.0196. On a 4-hour chart, I advise buying the euro when the price is above the corridor with a target of 1.1041.

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Technical analysis

Samir Klishi,
Chuyên gia phân tích của InstaForex
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