Analysis of EUR/USD 5M

EUR/USD showed a new twist in the downward movement on Wednesday. However, on the hourly chart, it is clear that the recent movement mostly resembles a "swing" or a form of consolidation. The pair failed to break the level of 1.0581 within the new bullish correction, and the technical picture on the hourly chart suggests that the euro will resume its decline. To be honest, we still believe that the corrective phase should continue, as a 180-pip retracement against an 800-pip drop seems too small. But at the same time, there are more and more signs that the market intends to continue the downtrend rather than spend time on corrections and retracements.

Yesterday's macroeconomic background was weak, so the dollar did not rise for that reason. The final estimate for the eurozone inflation report came out, which did not move the market, and the report on the number of building permits in the United States caused a reaction of 15 pips.

Speaking of trading signals, in turbulent movements with 70 points of volatility, it was very difficult to expect good trades and profits. The first buy signal turned out to be false and resulted in a loss. The second and third sell signals duplicated each other, which made it possible to offset the first trade's losses. The last buy signal should not have been executed as it was formed too late. Thus, the day ended with no gains or losses.

COT report:

On Friday, a new COT report for October 10th was released. Over the past 12 months, the COT report data has been consistent with what's happening in the market. The net position of large traders (the second indicator) began to rise back in September 2022, roughly at the same time that the euro started to rise. In the first half of 2023, the net position hardly increased, but the euro remained relatively high during this period. Only in the last two months, we have seen a decline in the euro and a drop in the net position, which we've been waiting for a long time. Currently, the net position of non-commercial traders is still bullish and this trend is likely to lose momentum soon.

We have previously noted that the red and green lines have moved significantly apart from each other, which often precedes the end of a trend. This configuration persisted for over half a year, but ultimately, the lines have started moving closer to each other. Therefore, we still stick to the scenario that the upward trend is over. During the last reporting week, the number of long positions for the "non-commercial" group decreased by 4,200, while the number of short positions fell by 800. Consequently, the net position decreased by another 3,400 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 75,000, but the gap is narrowing. In principle, it is now evident even without COT reports that the euro is set to extend its weakness.

Analysis of EUR/USD 1H

On the 1-hour chart, the pair has settled above the Ichimoku indicator lines, and there's still a high probability of another corrective phase. At the same time, the pair isn't in a rush to rise, and we might even see a flat movement. The technical picture is currently vague, and there is a significant risk of false signals on all time frames.

On October 19, we highlight the following levels for trading: 1.0269, 1.0340-1.0366, 1.0485, 1.0537, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, as well as the Senkou Span B (1.0533) and Kijun-sen (1.0546) lines. The Ichimoku indicator lines can shift during the day, so this should be taken into account when identifying trading signals. There are also auxiliary support and resistance levels, but signals are not formed near them. Signals can be "bounces" and "breakouts" of extreme levels and lines. Don't forget to set a breakeven Stop Loss if the price has moved in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.

On Thursday, there are no significant events lined up for the eurozone. From the U.S., reports on new home sales and jobless claims will be made public. These are reports of secondary importance, so we don't expect potential reactions to exceed 20-30 pips. We'll also hear from Federal Reserve Chairman Jerome Powell, but we don't expect any significant statements.

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.