Hello, dear traders! On Tuesday, the EUR/USD pair continued rising after the rebound from the correction level of 200% at 1.1143 and by the end of the day the pair closed above the level of 1.1250. Consequently, the European currency may currently continue to grow towards the next correction level of 161.8% at 1.1357. Yesterday's news background was highly significant. Eurozone manufacturing PMI has decreased by 0.3 points in January. The unemployment rate in the EU dropped from 7.1% to 7.0%. The US ISM manufacturing index declined from 58.8 to 57.6 points. As mentioned above, Tuesday's three most important indices are almost in line with traders' expectations. All reports are ambiguous, as in all cases the outlook and the reading of the previous month did not correspond to real figures. This fact can probably be the reason for unclear pair's movements during the day. The pair reversed several times, and traders' activity was low.
Moreover, these reports are insignificant compared to tomorrow's event. The ECB meeting is absolutely crucial. However, I want to discuss it from another perspective. I am confident that the meeting will be unproductive. I believe the interest rate will not be raised, the stimulus programs will not be reduced, and Christine Lagarde's rhetoric will not become more hawkish. Nevertheless, the euro has been dramatically rising in the last three days. Moreover, it has been growing even when the EU GDP report was worse than traders' expectations. I believe such traders' moves are not logical. I think they expect the ECB dovish rhetoric tomorrow and they are getting ready for new sales of the euro. The European Central Bank should probably make strong statements tomorrow for the euro to continue rising. A significant report on EU inflation will be released today. Based on its data, traders will likely not buy the European currency.
On the 4-hour chart, the pair made a rebound from the Fibo level of 161.8% at 1.1148 and continued to rise towards the correction level of 127.2% at 1.1404. None of the indicators show any divergence today. The pair's rate fixing under the level of 161.8% will favor the US currency and the renewal of the fall towards the correction level of 200.0% at 1.0865.
COT report:
Last week, speculators opened 1,468 long contracts and closed 4,984 short contracts. This fact indicates that their sentiment has become more bullish. The total number of long contracts held by speculators is now 214,000, while the number of short contracts is 185,000. Therefore, the overall sentiment of "non-commercial" traders is also considered bullish. Consequently, the euro may slightly grow. However, the days, when traders worked out the Fed meeting and when the ECB meeting will be worked out, have not been taken into account yet. Besides, they can have a profound impact on traders' sentiment. The figures concerning "non-commercial" traders could be very different.
US and EU economic news calendar:
EU - Consumer Price Index (10-00 UTC).
US - ADP Employment Change (13-15 UTC).
On February 2, the EU economic calendar contains an important report on inflation, while the US calendar contains a less significant ADP report, indicating the change in the number of employees in the private sector. Today's news background is moderate.
EUR/USD outlook and recommendations for traders:
I recommend new sales of the pair with a target of 1.1143 if a close below the level of 1.1250 is performed on the hourly chart. I recommend buying the pair if there is a pullback from 1.1148 on the 4-hour chart. The objective of 1.1250 has already been achieved on the hourly chart. Currently, it is possible to buy with the target of 1.1357. The report on inflation and the outcome of the ECB meeting should also be taken into account.