Both linear regression channels turned to the upside on the 15-minute timeframe. Traders have coped with the Kijun-sen line on their way, now they will strive for the Senkou Span B line, because the euro's prospects depend on whether it can surpass it or not.
The euro/dollar pair was quite calm on the hourly timeframe on Thursday, January 21. Volatility during the day was average, and the movement was predominantly upward. The last time the pair retreated to the downside made it possible to create a new upward channel. The pair rebounded upon reaching its upper line, starting a new round of downward movement. Now we expect the quotes to slightly fall to the area of the Kijun-sen line. In general, an upward trend has formed. Although it is weak at the moment, nonetheless there still is. So far, the bulls are in thought. At the top is the Senkou Span B line, which is a fairly strong line and may not let the pair rise above it. So for now, you can trade bullish, buying the pair in the area of the critical line and the lower line of the rising channel. To form a strong signal, you need a clear rebound off any line. The target is the upper area of the channel or the Senkou Span B. As for the technical prospects of the EUR/USD pair, they remain highly doubtful. Let us remind you that the euro as a whole has been growing for ten months, and the reasons for this growth are still very difficult to determine.
What to say about COT reports now? The last four reports showed minimal changes in the number of open contracts. Accordingly, there are minimal changes in the mood of professional traders. The latest report recorded an increase of 8,700 contracts on a net position at once. Thus, the gap between Buy-contracts and Sell, which was clearly in favor of buyers, increased even more (229,000 against 76,000). Speaking in terms of numbers, there is a high likelihood of renewed growth for the euro, although just a couple of months ago, major players were openly preparing for a new downward trend. They braced for it, but in the end they admitted the error of this preparation. We still believe that the weak demand for the dollar is to blame. Therefore, the greenback prevented the euro/dollar pair from falling. But if this factor persists in the coming months (speculative), then the dollar may resume its long-term decline. Other groups of traders and their data are less important now. The most important thing to understand is that the markets are quite ready to keep buying the euro and getting rid of the dollar. Even with the opposite fundamental background.
The European Union summed up the results of the European Central Bank meeting on Thursday. As we have already mentioned in our fundamental reviews, monetary policy remained unchanged, just like rates and the PEPP program. Thus, the most interesting was the press conference of ECB President Christine Lagarde. She was not as optimistic as in her previous speech and said that the rise in coronavirus diseases in the eurozone is again slowing economic recovery and economic activity. Also, Lagarde said that lockdowns and quarantines in many European countries, as well as the extension of their validity periods, will also leave a negative imprint on the European economy. Most of all, Lagarde is worried about the service sector, which suffers from a lockdown much more than the manufacturing sector. According to her, business activity in the manufacturing sector remains at a fairly high level. Lagarde also noted the importance and significance of the start of vaccination, but said that the coronavirus pandemic still poses serious risks to the economy. According to Lagarde, the Eurozone's GDP contracted in the fourth quarter.
Business activity indices in the services and manufacturing sectors for January will be released today. We will be able to verify Lagarde's words. According to analysts' forecasts, business activity in the service sector will continue to fall and reach 45.0. Business activity in the manufacturing sector will also slightly decline to 54.6. Similar indices will be published in America. Both are expected to be above the 50.0 level in the US, signaling good health in both areas.
We have two trading ideas for January 22:
1) Buyers return to the game and slowly push the pair up. Thus, the trend is currently to the upside. You are advised to open new long positions while aiming for the resistance level of 1.2179 and the Senkou Span B line (1.2199) upon rebounding from the Kijun-sen line (1.2115) or the lower channel line. Take Profit in this case can be up to 70 points. If the pair settles below the channel, it will reverse the upward trend.
2) Bears have temporarily let go of the initiative. Therefore, short positions are not advisable right now. You can consider trading down again if the price settles below the rising channel. In this case, you are advised to open new sell positions while aiming for the support level of 1.2026. Take Profit in this case can be up to 50 points.
Forecast and trading signals for GBP/USD
Explanations for illustrations:
Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one.
Support and resistance areas are areas from which the price has repeatedly rebounded off.
Yellow lines are trend lines, trend channels and any other technical patterns.
Indicator 1 on the COT charts is the size of the net position of each category of traders.
Indicator 2 on the COT charts is the size of the net position for the "non-commercial" group.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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