Analysis of EUR/USD 5M
EUR/USD showed new positive trades on Friday, and the markets were closed yesterday, in honor of Christmas. The volatility on Friday was quite low, but the euro managed to gain a few dozen pips even in "almost flat" conditions. Therefore, the technical picture remained unchanged. The euro is still rising, and there are still many questions regarding its movement.
On Friday, the European Union did not publish anything significant, but the US released several interesting reports. The most important and resonant among them were the durable goods orders and the University of Michigan consumer sentiment index. The first indicator exceeded forecasts by more than twice and was quite important. The second indicator turned out to be better than the market expectations by a few tenths of a point. Reports on personal income and spending, as well as the core personal consumption expenditures index, almost completely matched forecasts, and their values cannot be called a negative factor for the dollar. Thus, two out of four reports suggested that the dollar should strengthen, which obviously did not happen. The sluggish decline by 30 pips in the second half of the day is typical market noise.
As for trading signals, during the day, the pair constantly tested the level of 1.1006. Initially, it exceeded this level, and then bounced off it from above three times. After these signals, the price managed to rise 25 pips twice, which was enough to set the Stop Loss at breakeven, but it was difficult to talk about profit during the day – the volatility was very low. Therefore, there could be no loss on the signals, but there was probably no profit either.
COT report:
The latest COT report is dated December 19. In the first half of 2023, the net position of commercial traders hardly increased, but the euro remained relatively high during this period. Then, the euro and the net position both decreased for several months, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can conclude that the pair is correcting higher, but the correction cannot last long because it is still a correction.
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, these lines are diverging again. Therefore, we support the scenario where the euro should fall and the upward trend must end. During the last reporting week, the number of long positions for the non-commercial group decreased by 23,800, while the number of short positions increased by 8,900. Consequently, the net position decreased by 32,700. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 115,000. The gap is significant, and even without COT reports, it is evident that the euro should continue to fall.
Analysis of EUR/USD 1H
On the 1-hour chart, EUR/USD smoothly rose to the level of 1.1000 and also overcame it. We believe that the euro has risen very high already, and it continues to rise more often than it falls, although there are no serious reasons behind this. Therefore, the only thing we can do is to follow the trend right now. The ascending channel currently visualizes what is happening in the market.
Today, we will consider the rebound from the level of 1.1006 as a potential buy signal. If that happens, you can consider long positions with 1.1092 as the target. You can consider shorts after the price consolidates below the Kijun-sen line and below the ascending channel with targets at 1.0935 and 1.0889. The pair may go through significantly weak volatility this week, which should be taken into account when opening a position.
On December 26, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, as well as the Senkou Span B line (1.0867) and the Kijun-sen line (1.0975). 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.
There are no significant events or reports on Tuesday. Therefore, we expect a flat and low volatility.
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.
