EUR/USD – 24H.
Another trading week on the forex market ended with a collapse of the euro/dollar pair quotes and the reasons for this collapse are not entirely clear. More precisely, you can think of as many reasons as you want, any fundamental event can be "tied" to any movement in the market if you want. But we would like to find the true cause of what happened on Friday. By the way, it should be noted that the fall in the pair's quotes began on Thursday and continued on Friday. So, the process of strengthening the US currency began on Thursday, February 25 in the afternoon. That is, in the US trading session. At the same time, the British pound sterling began its fall also around this time. So, the first conclusion is that the fall of both major pairs is connected with America. In the United States on Thursday, a package of important macroeconomic statistics was released (we will talk about it below), which could well provoke such a movement, although, in the last year, market participants very often ignore statistics. But why did the dollar continue to rise on Friday? On the one hand, everything can be explained by technical factors. The pair went only 170 points down in two days. Yes, the movement is strong, but not a collapse. For example, on the 16th-17th, the pair went down 130 points, but no one panicked about it. Therefore, from our point of view, several factors simply coincided in the market at the end of last week, which caused an unusually strong (over the past year) strengthening of the US currency. On the 24-hour timeframe, you can see that the price bounced from the 23.6% Fibonacci level and the upper border of the Ichimoku cloud. Unfortunately, the option with a long-term upward movement may be shelved or canceled altogether. If the pair is fixed below the 50.0% Fibonacci level on the 24-hour timeframe, this will significantly increase the probability of further growth of the US dollar.
COT report.
During the last reporting week (February 16-22), the EUR/USD pair increased by 30 points. In recent weeks, we have insisted on the option of continuing the long-term upward trend. This was partly supported by the latest COT reports. Over the past two weeks, the mood of large traders has not changed dramatically, and at the time of publication of the penultimate report, the number of open long positions for professional traders exceeded the number of open short positions by three times. Thus, a bullish mood is on the face. The latest COT report also didn't show any major changes. During the reporting week, a group of "Non-commercial" traders opened 6.5 thousand buy contracts and sell contracts. Thus, the net position of this group of traders has not changed in any way, and the mood has not become more bullish or more bearish. However, for the third week in a row, the first indicator in the illustration indicates that the mood of non-commercial traders is unchanged. The green and red lines did not rise or fall during these three weeks. Thus, the big players took a wait-and-see attitude. Well, the days with the collapse of the pair (Thursday and Friday of this week) were not included in the new COT report. Thus, since the beginning of September last year, major players have been aiming for a downward trend, however, global fundamental factors prevent them from starting it. We have talked about the global fundamental factors more than once, everything boils down to a huge increase in the US money supply in 2020.
There were many important fundamental events this week. First, the macroeconomic statistics in the United States, which finally aroused the interest of traders and they worked it out. Second, two speeches of Jerome Powell to Congress. Third, the United States attack on Syria, which was the first military operation since Joe Biden took office. We have already talked about statistics. It turned out to be strong and could provoke a rise in the dollar. Jerome Powell's speeches did not affect the mood of traders. But the third factor could cause an additional strengthening of the US currency. The fact is that in recent years, it is the US dollar that has become the "reserve currency". Previously, these were the Japanese yen or the Swiss franc. Recall that the "reserve currency" is a currency that investors actively buy to preserve the value of their assets in various emergencies. Think back to March of last year. Before the prolonged fall of the US currency began, the dollar rose by 8 cents in ten days. This is the time when the "coronavirus" began to take over the whole world and was officially recognized as a pandemic. The same is true of the ongoing conflicts in the Middle East. As soon as there is another risk of a new conflict, traders begin to transfer their money from risky assets to less risky ones. The demand for the dollar at such a time increases, which leads to its strengthening. So, from our point of view, what happened at the end of this working week is just a coincidence of two strong factors.
Trading plan for the week of March 1-5:
1) On the 24-hour timeframe, the whole technical picture is confused. The pair remains inside the Ichimoku cloud for the time being, and global fundamentals continue to support the pair's further growth. However, now you will need to observe how the sellers will behave. Above the 50.0% Fibonacci level, there is a high probability of resuming the upward trend, however, the pair's downward movement must stop as quickly as possible.
2) It is still very early to talk about the beginning of the formation of a new downward trend. The pair has gone down only 170 points so far. However, if the mood of traders abruptly changes to bearish, this may cause the pair's quotes to continue falling. We do not believe in this option yet, as we believe that the new package of stimulus measures in the US will lead to a new increase in the money supply and a new increase in the supply of the US currency on the market, which will provoke a new fall in the dollar.
Explanation of the illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.