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EUR/USD started a fairly strong downward movement on Friday. Within this correction (for now, we should interpret this movement as a corrective phase), the price nearly dropped to the Senkou Span B and Kijun-sen lines. Therefore, the uptrend that formed last week is still intact. The decline was only partially related to the macroeconomic background. Eurozone PMI data turned out to be slightly worse than expected, while the US PMIs were slightly better. However, it is worth noting that the market was eager to sell the pair on Friday, as the euro had been rising for two days before that. Moreover, the growth was quite significant. We expected the pair to fall on Thursday, but the Bank of England and European Central Bank meetings triggered the upward movement of the euro and the pound.
From a technical perspective, the euro can still rise. The fact that we do not see any reasons for the euro to strengthen further does not mean that it is impossible for it to start an upward movement. Last week, we did not expect factors that would substantially support the euro, but they appeared. Therefore, everything will now depend on the Kijun-sen and Senkou Span B lines, which together form a strong support area. We believe that the pair should return to the level of 1.0757.
Friday's trading signals were not the best. The first sell signal around the level of 1.0935 formed when a significant portion of the downward path had already been covered. Nevertheless, traders could open a short position, and the price subsequently reached the nearest target level of 1.0889. The profit for the trade was about 30 pips, which is better than nothing.
The latest COT report is dated December 12. In the first half of 2023, the net position of commercial traders hardly increased, but the euro remained relatively high during this period. Then, the euro and the net position both decreased for several months, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can conclude that the pair is correcting higher, but the correction cannot last long because it is still a correction.
We have previously noted that the red and green lines have moved significantly apart from each other, which often precedes the end of a trend. Currently, after a small correction, these lines are diverging again. Therefore, we stick to the scenario that the upward trend should come to an end. During the last reporting week, the number of long positions for the "non-commercial" group decreased by 3,800, while the number of short positions increased by 1,100. Consequently, the net position decreased by 4,900. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 148,000. In principle, it is now evident even without COT reports that the euro should continue to fall.
On the 1-hour chart, EUR/USD sharply rose and reached the psychological level of 1.1000. However, it couldn't go higher, and there is no apparent reason for that. We believe that the euro has risen very high already, and the ECB meetings indicated one thing: both central banks will reduce key interest rates next year.
At present, the price has approached the area of 1.0872-1.0889. We believe that the pair may bounce off this mark, but more likely, it will continue to fall. We expect the pair to surpass this area (perhaps not on the first attempt), leading to further downward movement. In case the pair bounces from this area, you can consider buying, but be cautious. Targets are 1.0935 and 1.1006.
On December 18, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, as well as the Senkou Span B line (1.0872) and Kijun-sen (1.0875) lines. The Ichimoku indicator lines can shift during the day, so this should be taken into account when identifying trading signals. There are also auxiliary support and resistance levels, but signals are not formed near them. Signals can be "bounces" and "breakouts" of extreme levels and lines. Don't forget to set a breakeven Stop Loss if the price has moved in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.
On Monday, there are no important reports or events lined up in the European Union or the United States. Volatility will decrease, and we might witness sluggish movement.
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.
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