Analysis of EUR/USD 5M

EUR/USD tried to start a corrective move on Monday, but all it managed to do was move by 30-35 pips. With such low volatility, there's practically nothing to talk about. In fact, there was hardly any movement because 35 pips is just market noise. There were no economic reports, just speeches by European Central Bank President Christine Lagarde and several of her colleagues. But none of the ECB officials mentioned anything significant, and Lagarde did not see fit to respond to a journalist's question about a rate change in September. Thus, we believe that the likelihood of a pause in September has increased even more. If the ECB were inclined to continue rate hikes, they would have openly and directly stated it. Or at least indicated that a rate hike is being considered. If not, then the central bank is likely preparing for a pause before completing the tightening cycle.

Despite the low volatility, three trading signals were still generated. The price bounced off the level of 1.0806 three times. In the very last case, it managed to fall by about 15 pips, so the stop loss for the trade should have been set at breakeven. This should have been manually closed since there were no buy signals by the end of the day. You could have made a profit of 10 pips on it, but of course, that's not the kind of profit we enter the market for.

COT report:

On Friday, a new COT report for August 29 was released. Over the last 11 months, COT reports fully corresponded to what is happening in the market. The chart above clearly shows that the net position of major traders (the second indicator) began to grow in September 2022 and at about the same time the euro started rising too. In the last 6-7 months, the net position has not risen but the euro remains at very high levels. At the moment, the net position of non-commercial traders is bullish and remains strong. The euro continues to stay relatively expensive compared to the dollar.

I have already mentioned the fact that a fairly high value of the net position signals the end of an uptrend. This is also confirmed by the first indicator where the red and green lines are very far from each other. Usually, it precedes the end of the trend. During the last reporting week, the number of long positions of the non-commercial group of traders decreased by 8,800 and the number of short ones rose by 3,200. The net position decreased by 12,100 contracts. The number of long positions is higher than the number of short ones of non-commercial traders by 148,000. This is a very large gap as the difference is almost threefold. Even without COT reports, it is obvious that the euro should decline but speculators are still in no hurry to sell.

Analysis of EUR/USD 1H

On the 1H chart, the pair quickly ended its bullish correction, since it doesn't have a good reason to sharply rise in the medium-term. The dollar could have fallen on Friday (it had every reason to), but instead it grew. Now everything depends on the 1.0762 level, which stopped the price from falling further last time. The pair could still start a new phase of the bullish correction from the current positions.

On September 5, traders should pay attention to the following key levels: 1.0658-1.0669, 1.0768, 1.0806, 1.0868, 1.0935, 1.1043, 1.1092, 1.1137, as well as the Senkou Span B (1.0850) and Kijun-sen (1.0858) lines. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits. Traders look for signals at rebounds and breakouts. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 15 pips. This will protect against possible losses if the signal turns out to be false.

Today, there are hardly any economic reports. The only noteworthy reports are the final Services PMIs of Germany and the EU (secondary of importance), the Producer Price Index in the EU (another secondary report), and a new speech by Lagarde, along with Luis de Guindos and Isabel Schnabel. After Lagarde's speech on Monday, it would be difficult to expect any revelations and loud statements today.

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.