Analysis of EUR/USD 5M

EUR/USD was up by 100 pips on Wednesday, which was, of course, triggered by the outcome of the Federal Reserve meeting. It's worth recalling that the market did not expect any changes in monetary policy, so it immediately focused on the statement of Fed Chairman Jerome Powell, who made several dovish statements during the press conference. His comments unfairly provoked the dollar's fall. Powell said that Fed officials are likely done raising rates, and he signaled that they expect to make three quarter-point cuts to their benchmark rate next year. In our opinion, this is not surprising. The problem with the dollar was that Powell openly announced the end of the monetary tightening cycle for the first time. The market was expecting this, and this shouldn't be a surprise to anyone, and yet the dollar still slumped.

The technical picture has not changed. After the price left the descending channel, we expected the pair to rise. However, the prospects for the euro's growth remain unclear. The European Central Bank will also begin easing monetary policy next year, and ECB President Christine Lagarde may announce it today. Therefore, the US dollar may strengthen. We consider the pair's growth as part of a correction and expect the downtrend to resume.

Speaking of trading signals, during yesterday's European session, the price bounced off the critical line. At the time of the announcement of the outcome of the Fed meeting, traders could gain profit using a long position, so you could set the stop loss to breakeven or below the Kijun-sen line and remain in longs. Subsequently, the price rose to the Senkou Span B line, allowing traders to earn about 100 pips.

COT report:

The latest COT report is dated December 5. 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. In the last three months, we have seen a decline in the euro and a drop in the net position, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can draw a clear conclusion: the pair is correcting higher, but the correction cycle may have finally come to an end.

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. Currently, after a small correction, these lines are diverging again. Therefore, we stick to the scenario that the upward trend should come to an end. During the last reporting week, the number of long positions for the "non-commercial" group increased by 2,200, while the number of short positions fell by 6,900. Consequently, the net position increased by 9,100. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 152,000. In principle, it is now evident even without COT reports that the euro should continue to fall.

Analysis of EUR/USD 1H

On the 1-hour chart, EUR/USD sharply rose to the Senkou Span B line, and the upward movement may end near this area. Yesterday, the pair suddenly increased, and today and tomorrow, it may impulsively fall as well. Even if the Fed officially announced the end of the tightening cycle, we don't see any substantial reason for the euro to rise further.

At present, traders can be advised as follows. If in today's session, the pair does not consolidate back below Senkou Span B, then you can continue buying with targets at 1.0935 and slightly above. A consolidation below Senkou Span B will likely lead the pair to fall to 1.0757.

On December 14, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1043, 1,1092, 1,1137, as well as the Senkou Span B line (1.0886) and the Kijun-sen line (1.0820) 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, attention now turns to the ECB and the Bank of England meetings, each one may influence the euro. Lagarde will speak, and she might signal the end of the rate hike cycle. The US will release two minor reports on retail sales and jobless claims.

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.