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22.05.202212:44 Forex Analysis & Reviews: Analysis of the trading week of May 16-20 for the EUR/USD pair. COT report. The first positive week for the euro in a long time.

Long-term perspective.
Exchange Rates 22.05.2022 analysis

The EUR/USD currency pair has managed to rise in price by 140 points during the current week. We will immediately note what we have already talked about in our previous articles. Although the growth of the euro currency looks impressive on a small TF, on a 24-hour TF it looks like a banal weak pullback. That is, the European currency has risen in price very little and very weakly to conclude the end of the downward trend and the beginning of the upward trend. By and large, the pair has not even managed to gain a foothold above the critical line yet. That is, by all indications, the downward trend remains, and the euro may once again take the course to its 20-year lows. Of course, any new trend starts small. At first, it's a small movement, then it grows. However, will this be the case with the euro currency this time? Pay attention to the illustration: over the past months, the pair has shown the same small pullbacks several times and each time then resumed the downward trend. Moreover, the fundamental, macroeconomic, and geopolitical factors have not changed much this week. If earlier the euro currency showed a strong fall on these factors, then why should it start showing growth now? The answer is the same as before. Only the technical factor currently supports the euro. Whatever the fundamental background, the pair cannot move constantly in one direction. There should be corrections. This is exactly what the euro can count on over the next two weeks. If the bears do not go on the offensive again, then the pair will have at least a chance to show a tangible correction. It should also be remembered that the current departure to the top may simply be an "acceleration" before a new fall. This also sometimes happens when traders cannot overcome some important level for a long time. They sort of letting a couple go for a while, and then start new powerful sales.

COT analysis.

The latest COT reports on the euro currency have raised and are raising more and more questions. Only once in the past few months, the COT report has shown a "bearish" mood of major players, but in the last two weeks, the "bullish" has been intensifying again. That is, the paradoxical situation persists, in which the euro currency has been falling for a long time, but professional players at the same time buy euros and do not sell it. During the reporting week, the number of buy contracts increased by 2.5 thousand, and the number of shorts from the "Non-commercial" group decreased by 1.2 thousand. Thus, the net position increased by 3.7 thousand contracts per week. The number of buy contracts exceeds the number of sell contracts from non-commercial traders by 20 thousand. From our point of view, this is because the demand for the US dollar is much higher than the demand for the euro currency. Even if someone suggested that it's all about the weakening of the "bullish" mood in recent months (the second indicator is a histogram), then this is unlikely to be the case. The euro simply refuses to grow, despite any actions of major players. The illustration above clearly shows that the euro currency fell both when the net position grew (strengthening the "bullish" mood) and when the net position decreased (weakening the "bullish" mood). Thus, it is still impossible to make a correlation between COT reports and what is happening in the market. Forecasts to build on such data, moreover, do not make sense.

Analysis of fundamental events.

During the current week, there have been several rather ambiguous reports and events in the European Union that could be interpreted in favor of the euro. First is the GDP report for the first quarter. It grew in the second estimate to 0.3% q/q. Although this is not much, it is still an improvement compared to the first estimate. The second is the inflation report for April. The value of the indicator decreased from 7.5% y/y in the first assessment to 7.4% y/y in the second assessment. Also a little, but also nice. Third, new information began to arrive this week that the ECB may still decide on 1-2 rate hikes in 2022. We still believe that such a small increase will not play any special role in the distribution of forces between the Fed and the ECB, however, it is better than nothing. Therefore, we can say that these events were "weakly positive" for the euro. The euro currency has grown - weakly. Now we can only wait for next week when the bulls will be able to consolidate their success and continue to push the pair up a little bit.

Trading plan for the week of May 23-27:

1) On the 24-hour timeframe, the pair stopped just a step away from the minimum for the last 20 years - 1.0340. Almost all factors still speak in favor of the long-term growth of the US dollar, but still, we believe that the fall of the euro currency is already too strong (it's just a feeling, not a trading signal) and it's high time for it to go up. So far, the pair has managed to adjust only to the Kijun-sen line, so it does not make sense to seriously count on a strong upward movement yet. Nevertheless, overcoming the critical line will allow you to gradually buy a pair with the goal of Senkou Span B.

2) As for the sales of the euro/dollar pair, they are still more relevant now. If the price bounces off the critical line, it will be a new signal for a new fall with a target of 1.0172 (127.2% Fibonacci).

Explanations of the illustrations:

Price levels of support and resistance (resistance /support), Fibonacci levels - target levels when opening purchases or sales. Take Profit levels can be placed near them.

Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).

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.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Paolo Greco,
Analytical expert of InstaForex
© 2007-2022
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