Analysis of EUR/USD 5M
EUR/USD slightly corrected lower on Monday, but it's still too early to celebrate the start of a new downtrend. The ascending trendline remains relevant, and the pair may resume the upward movement at any moment. Moreover, market participants don't need the fundamental and macroeconomic background for this to happen. Last week, traders only had a valid reason to sell the dollar on Friday, but ironically, on that day, the dollar managed to edge up.
In regards to Monday, there were no significant events or reports. Several members of the European Central Bank's monetary committee spoke, which confirmed that June is a favorable month to start the interest rate cut cycle. As we have mentioned before, the ECB will start the easing process much earlier than the market expected, and the Federal Reserve will do so much later. This should support the US dollar, but for now, the market continues to buy the euro. However, we should not expect a pronounced decline until the pair breaches the trendline.
The absence of significant volatility has been discouraging, and no one expected much from a "dull Monday." Two trading signals were formed around the level of 1.0935, but in both cases, the price failed to move even 15 pips in the intended direction. Nevertheless, we already warned you that there would be nothing interesting on Monday. The key US inflation report will be released today, so volatility may gradually increase. One can only hope that the market will have a logical reaction to this report.
COT report:
The latest COT report is dated March 5. The net position of non-commercial traders has been persistently bullish for quite some time. Basically, the number of long positions in the market is higher than the number of short positions. However, at the same time, the net position of non-commercial traders has been decreasing in recent months, while that of commercial traders has been increasing. This shows that market sentiment is turning bearish, as speculators are increasing the volume of short positions on the euro. We don't see any fundamental factors that can support the euro's growth in the long term, while technical analysis also points to the formation of a downtrend.
We have already drawn your attention to the fact that the red and blue lines have significantly diverged, often preceding the end of a trend. Currently, these lines are moving towards each other (indicating a trend reversal). Therefore, we believe that the euro will fall further. During the last reporting week, the number of long positions for the non-commercial group decreased by 5,200, while the number of short positions decreased by 8,600. Accordingly, the net position increased by 3,400, which is relatively small. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 66,000 (previously 63,000). Thus, commercial traders continue to sell the euro.
Analysis of EUR/USD 1H
On the 1-hour chart, the uptrend remains intact, and EUR/USD has left the sideways channel of 1.0792-1.0889. In our opinion, all the factors currently suggest that the dollar will strengthen, but the market is still buying the euro for no apparent reason. Therefore, we expect the price to consolidate below the Senkou Span B line and the trendline, which may resume the downward movement. However, at the moment, there are no sell signals. The euro will continue to correct higher.
On March 12, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0823, 1,0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0843) and Kijun-sen (1.0911) lines. The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 15 pips. This will protect you against potential losses if the signal turns out to be false.
On Tuesday, there are no significant events lined up in the European Union. The US inflation report for February will warrant investor attention. If the forecasts come true, inflation will show no signs of slowing down. This should support the dollar, but the market is currently trading in an illogical manner, so it won't be surprising to see the dollar fall.
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.
