EUR/USD continued to trade higher on Thursday, after it gained 100-pips on Wednesday evening. Therefore, in just two days, the single currency has appreciated by 220 pips, and there weren't exactly any substantial reasons for this! Recently, we expected the dollar to restore its uptrend and did not expect information from central banks that would support the euro and the pound. Of course, we considered the possibility of "surprises," but this time the surprises turned out to be too one-sided and significant. Put simply, the European Central Bank said that it is not considering a key rate cut. And a day earlier, Federal Reserve Chair Jerome Powell announced a pivot to cutting rates in 2024, suggesting an end to the rate hike cycle. This information was enough for the dollar to plummet. We will analyze these events in more detail in fundamental articles.
From a technical perspective, we have a new uptrend. We don't know how long this will last. We still don't see significant reasons for the euro or the pound to rise further. But the market received the necessary informational support, so it can continue to buy the pair.
Yesterday's trading signals were quite decent because we observed a good trend for the second consecutive day. Initially, the price bounced off the Senkou Span B line and rose to the level of 1.0935, from which it bounced back. Therefore, traders could open long positions first (closed with a profit of about 20 pips), and then shorts (closed with a Stop Loss to breakeven). Surpassing the level of 1.0935 made it possible for traders to open longs. By the end of the day, the pair did not reach the nearest target level, so the trade could be closed anywhere, with a profit of about 50 pips.
COT report:The latest COT report is dated December 5. Over the past 12 months, the COT report 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. In the last three months, we have seen a decline in the euro and a drop in the net position, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can draw a clear conclusion: the pair is correcting higher, but the correction cycle may have finally come to an end.
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. Currently, after a small correction, these lines are diverging again. Therefore, we stick to the scenario that the upward trend should come to an end. During the last reporting week, the number of long positions for the "non-commercial" group increased by 2,200, while the number of short positions fell by 6,900. Consequently, the net position increased by 9,100. The number of BUY contracts is still higher than the number of SELL contracts among non-commercial traders by 152,000. In principle, it is now evident even without COT reports that the euro should continue to fall.
Analysis of EUR/USD 1HOn the 1-hour chart, EUR/USD sharply rose and reached the psychological level of 1.1000. After rising for two days, it is logical to expect a bearish correction, but the market is currently on edge, so it wouldn't be surprising if the euro continues to rise today for no apparent reason.
At the moment, the price has approached its recent local high, which is clearly visible on higher time frames. There is a high probability of a rebound from the level of 1.1017 as well as a decline. If this level does not hold up under the pressure of bulls, traders can stay in longs with targets at 1.1043 and 1.1092.
On December 15, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1043, 1.1092, 1.1137, as well as the Senkou Span B line (1.0872) and the Kijun-sen line (1.0875) lines. 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 Friday, market participants will focus on the preliminary HCOB PMI report from France, Germany, and the Eurozone. On the US docket, the US S&P Global PMI will also be released. These are not crucial reports, but if they significantly deviate from the forecasts, they can also affect the euro and the dollar. In addition, the US will also release a report on industrial production, which is of secondary importance.
Description of the chart: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.