On Friday, the EUR/USD pair reversed once more in favor of the US dollar and continued a strong downward trend after securing under the corrective level of 200.0% (1.0869). As a result, the decline in quotes keeps going in the direction of level 1.0750. The European currency will benefit from the pair's rebound from this level and some growth in the direction of 1.0869. Fixing at 1.0750 increases the likelihood that the decline will continue in the direction of the corrective level of 161.8% (1.0614).
Many anticipated an upward pullback after this currency saw a significant rise on Thursday. Many said that US data were unlikely to be strong, and analysts expected that all reports would have negative numbers. But in reality, everything went completely the opposite. The Nonfarm Payrolls report, which featured 517 thousand new positions, was the best in recent months; the figure from the previous year was also revised higher. This news alone, in my opinion, was sufficient justification for the bears to keep bending the line. Traders are told by the value of 517 thousand that they do not need to be concerned about the Fed rate. Direct evidence that the labor market is in outstanding condition has been provided to the regulator. Let me remind you that according to the Fed, there won't be a recession and if there is, it won't result in higher unemployment, layoffs, or other negative effects. By the way, despite increased borrowing rates, many big businesses have been laying off employees recently, but as we can see, new positions are also consistently being created. On top of that, the unemployment rate decreased to 3.4%, although analysts had projected an increase to 3.6%. Traders provided the US dollar with a lot of support, which allowed it to dramatically strengthen its position relative to the euro.
The pair is still falling on the 4-hour chart and has now passed under the bottom limit of the upward trend corridor. Since the pair left the channel where they had been since October, I believe this moment to be of utmost importance. The current adverse trading sentiment offers the US dollar good growth potential with targets of 1.0610 and 1.0201. Emerging divergences are currently undetectable by any indication.
Report on Commitments of Traders (COT):
During the previous reporting week, traders opened 2,099 short contracts and 9,464 long contracts. Major traders' attitude is still "bullish" and has somewhat improved. Currently, 238 thousand long futures and 103 thousand short contracts are all concentrated in the hands of traders. The COT figures show that the European currency is now increasing, but I also see that the number of long positions is over 2.5 times greater than the number of short positions. The likelihood of the euro currency's growth has been steadily increasing over the past few months, much like the euro itself, but the information background hasn't always backed it up. After a prolonged "dark time," the situation is still favorable for the euro, therefore its prospects are still good. Until the ECB gradually raises the interest rate by increments of 0.50%, at least.
Calendar of events for the United States and the European Union:
EU – index of business activity in the construction sector (10:30 UTC).
EU – retail trade volume (12:00 UTC).
EU – Christine Lagarde's speech (20:00 UTC).
Several reports will be presented in the European Union on February 6, but Christine Lagarde's speech that evening will be the most intriguing event on the US economic calendar. The information backdrop may not have much of an impact on the traders' attitudes today.
Forecast for EUR/USD and trading advice:
On a 4-hour chart, I suggested selling the pair when it closed below the corridor. The targets are 1.0614 and 1.0750. The transactions can now remain open. On the hourly scale, buying the euro currency is conceivable when it recovers from the 1.0750 level with a target of 1.0869.
