EUR/USD – 24H.
The EUR/USD currency pair was again inside the "swing" for most of the past week, still with a minimal upward bias. We gave precisely the exact description of the movement of the pair a week ago. Thus, the nature of the pair's movement does not change at all, and the movements continue to remain indistinct in the last two weeks. In principle, after the pair's quotes reached the level of 1.2232 on May 18, the movement as such stopped, and the pair spent all the following days almost flat. Even this Friday, the relatively strong downward movement that began after a couple of hours was replaced by equally strong growth. Thus, in general, we can say that the European currency continues to hold a leading position in pair with the dollar, and the bears continue to remain extremely weak. The macroeconomic background was absent in 4 out of 5 days last week. And on Thursday, when there were certain publications, the pair showed volatility of 40 points. Thus, the macroeconomic background continues to play almost no role for traders and does not influence the pair's movement and the trend, except for the very minimum. Overall, the global upward trend persists, as do the global fundamentals that we regularly talk about. We believe that it is because of them that the US currency stubbornly cannot rise in price. How can this be done if the Fed and the US Congress continue to pump trillions of dollars into the US economy? Roughly speaking, even the major players of the foreign exchange market do not play a unique role in the euro/dollar exchange rate right now. They also tend to play along with the trend unless it is a non-commercial transaction. Therefore, we continue to believe that the US currency will depreciate in 2021 and expect in the next week or two to reach 3-year highs located near the level of 1.2350 and exceed them.
COT report.
During the last reporting week (May 11 – 17), the EUR/USD pair increased by 60 points. The new COT report, which was released yesterday, showed that professional traders continue to increase their buying positions in the European currency. This time, they opened 3.8 thousand new buy contracts and closed 1.4 thousand sell contracts. Thus, the net position for this group of traders increased by 5.2 thousand. Therefore, the "bullish" mood of market participants becomes stronger again, which increases the prospects of the European currency for continued growth in 2021. The green and red lines (net positions of commercial and non-commercial traders) of the first indicator continue to move away from each other, which indicates the strengthening of the current trend (in our case, the upward trend). Therefore, at this time, the COT report signals a preferable continuation of the growth of the euro currency. In general, professional traders have opened 240 thousand contracts for buying and 133 thousand for selling. Thus, the difference is almost two times. But we continue to believe that the main factor is not the actions of professional players but the actions of the Fed and the US Congress. The illustration above clearly shows that the first indicator began to signal the end of the upward trend at a certain point. Prominent players began to cut longs and move to shorts. However, this did not lead to a reversal of the global trend downwards, indicating other significant factors affecting the exchange rate of the European currency.
The current trading week was simply a failure in macroeconomic and fundamental terms. There was news, but the markets didn't even notice it. Perhaps the most important report of the week is the report on orders for long-term goods in the United States, to which the markets have not reacted for more than a year. They didn't respond this time either. The report on GDP in the United States was not surprising, as this is its second estimate for the first quarter, and traders were ready for a value of +6.4%. And no more really important information was available to traders during the week. Thus, the US dollar has not received any support that it needs, and the European currency does not need support. Recall that even the rhetoric of the heads of central banks of the ECB and the Fed is slightly different. Christine Lagarde constantly points out in her speeches the weakness of the European economy and the need to continue stimulating.
Meanwhile, Jerome Powell admits that the Fed will begin to wind down the quantitative stimulus program under certain circumstances. Other members of the Fed's monetary committee echo him. But although the Fed is closer to tightening monetary policy, the European currency is still growing.
Trading plan for the week of May 31 – June 4:
1) In the 24-hour timeframe, the trend continues to be upward. Thus, long positions also remain relevant. We believe that the nearest target at this time is a 3-year high of 1.2349. Although the price has slowed down the upward movement in recent weeks, it continues to move up and shows a complete inability to show a strong downward correction.
2) The downward trend is still not relevant. The US currency has support only in the form of macroeconomic factors. Despite the high rate of recovery of the US economy (+6.4% in the first quarter; forecast +12.9% in the second quarter), this factor does not have any beneficial effect on the dollar exchange rate. The United States continues to print trillions of dollars, and COT reports show that major players are once again buying up the European currency. Thus, the dollar does not have much to hope for yet. The maximum is a correction, but the euro/dollar pair has serious problems even with it.
Explanation of 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.