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EUR/USD traded positively on Tuesday, but the nature of the movements was quite chaotic. The pair changed direction several times throughout the day, which was confusing. However, the constant reversals were justified by the macroeconomic and fundamental background. We mentioned a day ago that all the economic reports aren't highly important, but each of them can trigger a market reaction of 20-30 pips. This means that prices can often reverse. This is what actually happened, although, of course, not all reports can move the market. However, the eurozone released good ZEW data, and in the United States, there were decent retail sales and industrial production figures. Since the pair is still inclined towards a corrective move, any news that worked in favor of the dollar led to a pullback. In general, the day turned out to be chaotic.
Quite a number of trading signals. During the European session, the pair rebounded twice from the Senkou Span B line, and these signals mirrored each other. However, a long position did not bring profit because the price dropped during the US session. There was no opportunity to execute the sell signal since the price fell too sharply and quickly. The last buy signal was formed too late to be executed. Thus, traders neither gained nor lost on Tuesday.
On Friday, a new COT report for October 10th was released. Over the past 12 months, the COT data has been consistent with what's happening in the market. The net position of large traders (the second indicator) began to rise back in September 2022, roughly at the same time that the euro started to rise. In the first half of 2023, the net position hardly increased, but the euro remained relatively high during this period. Only in the last two months, we have seen a decline in the euro and a drop in the net position, which we've been waiting for a long time. Currently, the net position of non-commercial traders is still bullish and this trend is likely to lose momentum soon.
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. This configuration persisted for over half a year, but ultimately, the lines have started moving closer to each other. Therefore, we still stick to the scenario that the upward trend is over. During the last reporting week, the number of long positions for the "non-commercial" group decreased by 4,200, while the number of short positions fell by 800. Consequently, the net position decreased by another 3,400 contracts. The number of BUY contracts is higher than the number of SELL contracts among non-commercial traders by 75,000, but the gap is narrowing. In principle, it is now evident even without COT reports that the euro is set to extend its weakness.
On the 1-hour chart, the pair has settled above the Ichimoku indicator lines, and there's still a high probability of another corrective phase. We believe that the dollar will continue to advance in the medium term, but we still expect a stronger correction in the near future. In the near future, the pair will aim for the last local high, and the movement may remain choppy and unstable.
On October 18, we highlight the following levels for trading: 1.0269, 1.0340-1.0366, 1.0485, 1.0537, 1.0581, 1.0658-1.0669, 1.0768, 1.0806, 1,0868, 1.0935, as well as the Senkou Span B line (1.0533) and Kijun-sen (1.0567). 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 Wednesday, the eurozone will release the final estimate of its inflation data for September, which rarely deviates from the initial one. We'll also hear from European Central Bank President Christine Lagarde, though significant market-moving revelations from her speech are not anticipated. From the U.S., a moderately important report on building permits will be made public. It's also a secondary event. However, all these events can lead to choppy 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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