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26.11.2022 09:54 AM
EUR/USD. Analysis for the trading week of November 21-25. COT report. The euro currency is once again supported by the market.

Long-term outlook.

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This week, the EUR/USD currency pair has again been trading higher. This week, the macroeconomic and fundamental background was nonexistent, but traders still bought euros. Similar trends have been observed since the start of this year, but the dollar's value was rising steadily back then. Additionally, there were valid justifications and grounds for this in the case of the US dollar. It isn't easy to pinpoint the causes of the euro currency's increase. The issue is that specific explanations can be discovered. Technical is the least interesting. Given that the downward trend lasted for two years, we can now see a straightforward technical correction without the help of significant fundamentals. Short positions are profited from by traders, which causes the pair to rise.

The assumption that the Fed's growth rate will slow down and the ECB will continue to tighten monetary policy at the fastest possible rate is another reason the euro's value is increasing. Since the Fed rate started to rise before the ECB rate, the European regulator is now catching up, which is not surprising. There are some explanations for the euro's growth, but these explanations may not always be evident locally.

The price is currently above the Ichimoku indicator's lines on the 24-hour TF. Everything also points to the upward trend continuing on the 4-hour TF. Therefore, even though we have been anticipating a downward correction for a week, the euro may continue to increase. Will we hold off? The pair's growth may continue in the medium term, but over the past three weeks, it has grown too quickly and sharply, which is why we are anticipating a pullback. Only the speech by ECB Vice-Chairman Luis de Guindos, who assured the market of further tightening monetary policy, can be singled out as one of the fundamental events this week.

COT evaluation.

The predictions made by COT for the euro in 2022 are paradoxical. They displayed the openly "bullish" attitude of professional traders for the first half of the year, but the value of the euro was steadily declining at the same time. Then they displayed a "bearish" attitude for a while, and the value of the euro also steadily declined. The euro has barely budged from its 20-year lows, and the net position of non-profit traders has turned bullish again and is strengthening. As we've already mentioned, this is taking place due to the continued high demand for the US dollar against a challenging geopolitical backdrop. Therefore, although demand for the euro currency is rising, the strong demand for the dollar prevents the euro currency from experiencing significant growth. The number of buy-contracts from the "Non-commercial" group increased by 7,000 during the reporting week, while the number of shorts decreased by 2,000. The net position consequently increased by roughly 5,000 contracts. Recent weeks have seen a gradual increase in the value of the euro, which already accords with the COT report's indications. However, the geopolitics are likely to remain the same, and there may not be enough reasons for the euro to continue to grow. The upward trend may end as the first indicator's green and red lines are very far apart from one another. For non-commercial traders, there is 113 thousand more buy than sell contracts. As a result, although the net position of the "Non-commercial" group may continue to increase, the euro may not experience a similar increase. Sales are 39 thousand more if you look at all trading categories' overall indicators of open longs and shorts.

Analysis of fundamental events.

In the European Union this week, only business activity indices were released. Although both the composite and manufacturing sectors index rose from the previous month, they still fall below the "waterline" of 50.0. Therefore, it is unnecessary to discuss any positive dynamics at this time. Luis de Guindos has spoken several times, as was already mentioned, but there is a better time for the ECB representatives' rhetoric to change or tighten. De Guindos could not provide traders with any significant and interesting information because it is obvious to everyone that the ECB will keep raising the interest rate.

Trading strategy for the week of November 28 - December 2:

1) In the 24-hour timeframe, the pair crossed all of the Ichimoku indicator's lines, giving it a genuine chance of long-term growth for the first time in a very long time. Of course, if geopolitics begins to deteriorate once more, these chances could disappear quickly, but for now, we can confidently anticipate an upward movement with a target of 1.0636 (100.0% Fibonacci) and buy (cautiously) the pair.

2) The euro/dollar pair sales are no longer significant. It would be best to wait for the price to return below the important Ichimoku indicator lines before considering shorting. There are no circumstances in which the US dollar can reverse the current trend. However, in the modern world, anything can happen at any time.

Explanations of the illustrations:

Price levels of support and resistance (resistance /support), Fibonacci levels – targets 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 is the net position size of each category of traders.

Indicator 2 on the COT charts is the net position size for the "Non-commercial" group

Paolo Greco,
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