EUR/USD - 24H.
During the past week, the EUR/USD pair continued its downward movement, which began a week earlier. We can not say that we are now witnessing a new downward trend, after all, quotes have moved away from 2.5-year highs by only 250 points. However, the first step towards a new downward trend is laid. From a technical point of view, on the 24-hour timeframe, the pair's quotes are fixed below the critical Kijun-sen line, thus, the pair has excellent chances of further decline, at least to the Senkou Span B line. It should also be noted that we have long expected the end of the upward trend and more than once noted all the groundlessness of the rise in the price of the European currency. Starting with the empty fundamental background in the European Union, ending with the advantage of the American economy over the European one, and the departure of Donald Trump from the post of US president (which we consider as a positive factor for the dollar). Also, at least, a downward correction was long overdue from the technical point of view, as the continuous upward movement continued from November 4, that is, two full months, during which the euro rose by 700 points.
The COT report.
During the last reporting week (January 5-11), the EUR/USD pair fell by 100 points. The euro/dollar pair has finally started a more or less tangible downward movement. However, professional market participants at this time closed contracts for the sale of the euro currency. First of all, I would like to note that during the reporting week, the group of "Non-commercial" traders was not too active again. The number of contracts it opens is less than the number of closed ones. Second, professional market participants closed sell contracts and opened buy contracts. The first 6 thousand were closed, and the second 2.7 thousand were opened. Thus, the net position increased by 8.7 thousand contracts, which is not so small. In other words, the mood of non-profit traders (who are considered the engine of the market) has become more "bullish". It was at the moment when the euro began to fall. However, let's try to look at the situation as a whole. Since the very beginning of September 2020, non-profit traders have started to reduce their net position. That is, it is preparing for the end of the upward trend. However, the trend has not ended. Perhaps because the demand for the dollar during this period was even lower than for the euro. Anyway, the ascent of the euro currency continued and here it should be noted that the major players were somewhat confused. They did not rush to buy the euro again once the upward trend was resumed. Only at the very end of November, the net position began to increase slightly. All this suggests that the "Non-commercial" group is still waiting for the end of the upward trend. We still remind traders that any fundamental information or data from COT reports must be confirmed by technical signals.
This week, the fundamental background in the European Union was practically absent. In the middle of the week, the head of the ECB, Christine Lagarde, made a speech, which did not tell the markets anything interesting. Therefore, it is not surprising that there was no market reaction. At the end of the week, Jerome Powell, the chairman of the Federal Reserve, made a speech, which also did not say anything interesting and noting only that the regulator is not going to tighten monetary policy in the near future or reduce the volume of asset purchases from the open market. Among the important macroeconomic reports, we highlight the US inflation response, the US jobless claims report, and the US retail sales report. Inflation in the United States continued to slowly accelerate, however, the nature of its growth lies in the strong fall of the dollar in the foreign exchange market over the past 9-10 months. The number of applications for unemployment benefits began to grow, and retail sales declined at the end of December. Thus, the entire package of statistics can be called very weak. However, the US dollar continued to ignore macroeconomics. The most interesting thing is that the fundamental background is now not on the side of the dollar. In America, there is a new political crisis, which, however, should end with the coming to power of Joe Biden and the departure of Donald Trump. However, what has been happening in the US in recent weeks is not normal for the country and its currency. But the dollar is still rising. Thus, from our point of view, technical factors continue to be in the first place.
Trading plan for the week of January 18-22:
1) The pair's quotes continue to pull back from 2.5-year highs, and the upward trend is currently canceled. COT reports and the fundamental background have long (in general) signaled a possible and very likely fall in quotes. "Technique" also signals the beginning of a downward trend. A drop is very likely to the support level of 1.1992 and slightly lower, where the Senkou Span B line runs on the 24-hour timeframe. Therefore, it is recommended to buy euro/dollar not earlier than the price returns back above the Kijun-sen line.
2) The downward trend seems to have started and it is already possible to trade down, especially on lower time frames. However, it should be noted that the quotes have not yet moved so far away from the 2.5-year highs to consider the upward trend completed. Therefore, we are still trading lower, but we keep in mind the fact that the unjustified growth of the euro currency may still resume.
Explanation of the illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.