Analysis of EUR/USD 5M

EUR/USD started the week by falling on Monday morning. Take note that there were no significant economic reports scheduled for yesterday. Even if the market decided to react to three German reports from the IFO institute, all three reports turned out to be neutral in terms of their values, and the pair started to tumble during the US session. In theory, new speeches by representatives of the European Central Bank's monetary committee, de Cos and Galhau - heads of the central banks of Spain and France, respectively, could have triggered the euro's decline. Both officials said that the ECB will likely keep interest rates at a high level for a long time, and neither suggested that the central bank might tighten monetary policy further. Naturally, their rhetoric should be considered dovish.

As for trading signals, traders hardly had any opportunities to enter the market. In general, the only sell signal was formed during the Asian session with a slight error of two pips around the level of 1.0658. At the opening of the European session, the price stalled and did not move away from the point of formation by a single pip, so a short position could be opened. The problem was that hardly anyone expected volatility and trend movements on Monday, given the character of the pair's movements over the last three weeks. Nevertheless, a signal appeared, and it could be executed. As a result, the price dropped to the level of 1.0581, and traders should've taken profit.

COT report:

On Friday, a new COT report for September 19 was released. Over the last 12 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 rising too. In the last 6-7 months, the net position has not risen but the euro remains at very high levels and is declining rather slowly. We have only witnessed a decline from the euro in the last two months and a decrease in the net position as well, which we have been waiting for for quite some time. At the moment, the net position of non-commercial traders is bullish and has significant potential for decline.

I have already mentioned the fact that red and green lines are very far from each other, which signals the end of an uptrend. This has persisted for over half a year, but eventually the situation started to change. Therefore, we believe that the uptrend is coming to an end. During the last reporting week, the number of long positions of the non-commercial group of traders decreased by 4,900 and the number of short ones fell by 6,100. The net position decreased by 11,000 contracts. The number of long positions is higher than the number of short ones of non-commercial traders by 102,000 but the gap is narrowing, which is a good sign. Even without COT reports, it is obvious that the euro should decline, and the COT reports support this scenario.

Analysis of EUR/USD 1H

On the 1H chart, the currency pair maintains a downtrend. We warned you that breakouts, breaches, and other signals that point to a bullish reversal could be false. We believe that the dollar will continue to rise in the medium term, but the pair could still enter a bullish correction in the near future. Right now, there are no signs of starting this correction.

On September 26, traders should pay attention to the following key levels: 1.0485, 1.0537, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, 1.1043, as well as the Senkou Span B line (1.0700) and the Kijun-sen line (1.0657). 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.

On Tuesday, there are no particularly significant reports lined up in the European Union or the United States. European Central Bank Chief Economist Philip Lane and US Federal Reserve official Michelle Bowman are scheduled to speak, and the US new home sales report will also be released. These are unlikely to significantly move the market. Nevertheless, Monday showed us that traders are ready to "show their skills" this week.

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.