On Wednesday, the EUR/USD pair continued its weak decline and consolidated below the corrective level of 61.8% (1.0837). However, the decline did not last long, and by Thursday, the pair had reversed in favor of the euro, consolidating above this level. Thus, the upward movement may resume towards the 76.4% Fibonacci level at 1.0892, and the ascending trend channel still characterizes trader sentiment as "bullish."
The wave situation remains unchanged. The last downward wave ended on May 1 and failed to approach the low of the previous wave, while the new upward wave has already broken the peak of the previous wave and has been forming for 13 days. Thus, a "bullish" trend has formed, with bullish traders attacking almost daily. I consider this trend quite unstable and believe it will only last for a while. However, the rise in quotes has continued for a month, and the bears have been unable to push the pair even to the lower line of the channel. Therefore, there are no signs of the "bullish" trend ending.
Thursday's information background allowed bullish traders to launch a new offensive. Business activity indices in the services and manufacturing sectors of Germany and the Eurozone were better than traders' expectations, which triggered a new rise in the euro. I won't list all the figures, as their essence is one thing – the data was more positive than forecasts. However, overall trader activity remains extremely low. This is noticeable on almost any chart, indicating that most traders are uncertain about what to do next. Neither Lagarde's speeches nor economic data help clarify this. Bears seem completely absent from the market, while bulls attack only when there are reasons to do so. And there are no reasons every day.
On the 4-hour chart, the pair consolidated above the "wedge" pattern and rose to the 50.0% Fibonacci level at 1.0862. The last segment of the euro's growth looks somewhat ambiguous, so I am unsure of its continuation. However, to expect a decline, we need sell signals, which are currently absent. No impending divergences are observed today, either. The upward process may continue towards the next corrective level at 61.8%–1.0959. The only factor against the euro is the overbought RSI indicator (above +80).
Commitments of Traders (COT) Report:
In the last reporting week, speculators opened 7,804 long contracts and closed 4,761 short contracts. The sentiment of the "Non-commercial" group became "bearish" several weeks ago, but now bulls have the advantage again. The total number of long contracts speculators hold is now 178,000, while short contracts are 161,000. However, the situation will continue to shift in favor of the bears. The second column shows that the number of Short positions has increased from 140,000 to 161,000 over the past three months. During the same period, Long positions decreased from 202,000 to 178,000. Bulls have dominated the market for too long and now need a strong information background to resume the "bullish" trend. A series of poor reports from the US supported the euro, but more is needed for the long term.
News Calendar for the US and Eurozone:
- Eurozone – Germany Services PMI (07:30 UTC).
- Eurozone – Germany Manufacturing PMI (07:30 UTC).
- Eurozone – Services PMI (08:00 UTC).
- Eurozone – Manufacturing PMI (08:00 UTC).
- US – Initial Jobless Claims (12:30 UTC).
- US – Services PMI (13:45 UTC).
- US – Manufacturing PMI (13:45 UTC).
The economic events calendar for May 23 contains many interesting entries. The influence of the information background on trader sentiment today may be moderate in strength.
Forecast for EUR/USD and Trading Tips:
Selling the pair is possible in case of a rebound from the 1.0892 level on the hourly chart with a target of 1.0837 or upon a new closure below the 1.0837 level with a target of 1.0785. Buying the euro could be considered upon a rebound from the 1.0837 level on the hourly chart with a target of 1.0892. This target has almost been reached. New purchases can be made upon a rebound from the 1.0785–1.0797 zone with a target of 1.0892.
