Analysis of EUR/USD 5M

The EUR/USD pair gradually rose on Wednesday. It went through low volatility for most of the day, clearly waiting for Federal Reserve Chair Jerome Powell's evening speech. As expected, the rate was raised by 0.25%, and Powell mentioned that there is no clear plan for interest rates. He leaves the door open to another rate hike in September. Everything will depend on incoming macroeconomic data. Two inflation reports and two labor market reports will be released before the next meeting, providing enough data for analysis and decision-making. We believe that Powell's stance was somewhat hawkish, but this did not support the dollar. This is another situation where the US dollar fell when it could have shown growth.

There were no significant entry points on Wednesday. The first signal formed late in the evening after Powell's speech, and it was not advisable to act on it. This is in the absence of influential economic releases throughout the day. And as a result, there were no trading signals. Now, it is important to observe the market's reaction to the European Central Bank meeting, which concludes today.

COT report:

On Friday, a new COT report for July 18 was released. In the last 10 months, COT reports fully corresponded to what is happening in the market. The chart above clearly shows that the net position of major traders (the second indicator) began to grow in September 2022 and at about the same time the euro started climbing too. In the last 5-6 months, the net position has not risen but the euro remains at very high levels. At the moment, the net position of non-commercial traders is bullish. The euro keeps climbing against the US dollar.

I have already mentioned the fact that a fairly high value of the net position signals the end of an uptrend. This is also confirmed by the first indicator where the red and green lines are very far from each other. Usually, it precedes the end of the trend. During the last reporting week, the number of long positions of the non-commercial group of traders increased by 40,100 and the number of short ones by 1,500. The net position increased by 38,600 contracts. The number of long positions is higher than the number of short ones of non-commercial traders by 179,000. This is a very large gap as the difference is almost threefold. Even without COT reports, it is obvious that the euro should decline but speculators are still in no hurry to sell, and there are no signals for a reversal yet.

Analysis of EUR/USD 1H

On the 1H chart, the euro/dollar pair started a new upward movement, which could be a correction against the previous correction. As long as the price remains below the Senkou Span B line, the current uptrend should be considered a pullback. Especially since Powell's rhetoric was quite hawkish. However, if the market has started to mindlessly buy the euro again, then there's nothing we can do about it. We need to prepare for a potential new annual high.

On July 27, traders should pay attention to the following key levels: 1.0806, 1.0868, 1.0943, 1.1012, 1.1092, 1.1137, 1.1185, 1.1274, 1.1321, 1.1391, as well as the Senkou Span B line (1.1127) and the Kijun-sen line (1.1085). The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits. Traders look for signals at rebounds and breakouts. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 15 pips. This will protect against possible losses if the signal turns out to be false.

Today, the ECB will announce its crucial interest rate decision, and there is no doubt that it will also increase by 0.25%. More importantly, we should focus on ECB President Christine Lagarde's speech after the meeting. However, there are also other important events to pay attention to, such as US reports on GDP for the second quarter and orders for durable goods, which can also influence the pair's movement.

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.