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On Wednesday, EUR/USD showed movements that were slightly stronger but still weak. Unfortunately, the current reality is that a movement of 60-70 pips a day is considered "strong." The euro has strengthened again, although it had no justifiable reason to do so. The two key U.S. reports (ADP and JOLTs) showed neutral values that certainly did not imply that the dollar should fall. Federal Reserve Chair Jerome Powell, speaking before Congress, said that nothing is guaranteed and progress on inflation "is not assured,". In his remarks to the House Panel, he said rate cuts will "likely be appropriate" later this year. So now we can assume that the Fed will not lower rates in June either. This only shows that the U.S. central bank will maintain a hawkish policy for a longer time. And the dollar, of course... fell on these statements. That's all you need to know about the logic of the movements.
In recent months, we have often mentioned that the euro is too expensive and often shows growth where it simply should not. Wednesday was one of those days. Despite Powell's hawkish rhetoric, the market was not keen on buying the dollar.
Speaking of trading signals, they were no better than the logic of movements. The only trading signal was formed during the U.S. session when the price breached the level of 1.0889. After that, the pair climbed by another 15-20 pips, which traders could gain profit from. The pair's volatility was around 70 pips, and this is actually a big thing.
The latest COT report is dated February 27. The net position of non-commercial traders has been persistently bullish for quite some time. Basically, the number of long positions in the market is higher than the number of short positions. However, at the same time, the net position of non-commercial traders has been decreasing in recent months, while that of commercial traders has been increasing. This shows that market sentiment is turning bearish, as speculators are increasing the volume of short positions on the euro. We don't see any fundamental factors that can support the euro's growth in the long term, while technical analysis also points to the formation of a downtrend.
We have already drawn your attention to the fact that the red and blue lines have significantly diverged, often preceding the end of a trend. Currently, these lines are moving towards each other (indicating a trend change). Therefore, we believe that the euro will fall further. During the last reporting week, the number of long positions for the non-commercial group decreased by 7,900, while the number of short positions decreased by 2,800. Accordingly, the net position decreased by 5,100. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 63,000 (previously 68,000). Thus, commercial traders continue to sell the euro.
On the 1-hour chart, the uptrend remains intact, and EUR/USD has left the sideways channel of 1.0792-1.0889. In our opinion, all the factors currently suggest that the dollar will strengthen, but the market is still buying the euro for no apparent reason. Therefore, we expect the price to consolidate below the Senkou Span B line and the euro to revive the downward movement, but at the moment, there are no sell signals. The euro will continue to correct higher.
On March 7, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0823, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B line (1.0825) and the Kijun-sen (1.0855). The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 15 pips. This will protect you against potential losses if the signal turns out to be false.
On Thursday, the EU's docket will feature the results of the European Central Bank meeting and a speech of the ECB's President Christine Lagarde. It is difficult to determine how dovish Lagarde's position should be for the euro to start a decline. The key ECB rates will remain unchanged, but Lagarde may provide new information to the market based on the latest inflation report. She may only soften her stance as inflation has decreased, but this may not be enough for the euro to start a downward 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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