Hi, dear traders! On Tuesday, the EUR/USD pair made a reversal in favor of the American currency and fell to the correction level of 76.4% – 1.0823. The rebound from this level worked in favor of the European currency. So, EUR/USD began a new bullish sequence towards the Fibonacci level of 61.8% at 1.0883. A rebound from 1.0883 will set the stage for a new pullback to 1.0823. If EUR/USD settles above 1.0883, this will increase the likelihood of a climb towards the correction level of 50.0% at 1.0932.
The wave situation remains unchanged. The last bullish wave turned out to be quite weak and did not have a single chance to break through the peak of the previous wave (from January 11). A new downward wave confidently broke through the low of January 17th. Accordingly, the instrument is currently following a bearish trend and does not provide a single sign of its completion. A fall in the euro in the near future is the most realistic scenario. For the bearish trend to be reversed, the euro currency needs to rise above the peak of January 23. In this case, we will receive the first sign of the end of the bearish trend.
The economic calendar was empty again on Tuesday, but on Wednesday the situation will be more interesting for traders. Today important business activity indices will be released in the US and the European Union. Tomorrow, the ECB is holding a policy meeting and important statistics will be available in the US. Thus, the remaining three days of the trading week may be quite volatile.
Yesterday's fall in the European currency may be a primary response to the decisions of the ECB policy meeting. It does not make sense to expect hawkish rhetoric from ECB President Christine Lagarde, as well as further rate hikes. Therefore, I expect that the outcome of the ECB meeting will benefit the bears more than the bulls.
On the 4-hour chart, EUR/USD made a reversal in favor of the American currency and consolidated under the correction level of 50.0% at 1.0862. At this time, a return to this level has been completed, and a drop from it will confirm the intentions of the bears to continue selling the euro in the direction of the Fibonacci level of 38.2% at 1.0765. A bullish divergence is brewing at the RSI indicator, but without closing above the level of 1.0862 it will be meaningless. If the price settles below the ascending trend channel, this means that the trend has changed to bearish and now we should expect a stronger fall in the euro.
Commitments of Traders (COT):
In the last reporting week, speculators closed 4,179 Long contracts and opened 10,606 Short contracts. Sentiment among large market players remains bullish, though it has been waning. The total number of Long contracts held by speculators is now 204K whereas the number of Short contracts is 100K. Despite the fairly large difference, I still believe the tide will continue to swing in favor of the bears. The bulls have dominated the market for too long, and now they need a strong information background to maintain the bullish trend. I don't see such a background now. Professional traders may continue to close Long positions soon. I believe that recent economic data will allow the euro to resume its decline in the coming months.
Economic calendar for US and EU
EU: Germany's manufacturing PMI due at 08-30 UTC
EU: Germany's services PMI due at 08-30 UTC
EU: HCOB manufacturing PMI due at 09-00 UTC
EU: HCOB services PMI due at 09-00 UTC
US: S&P Global manufacturing PMI due at 14-45 UTC
US: S&P Global services PMI due at 14-45 UTC
On January 24, the economic calendar contains six equally important reports. The influence of the information background on market sentiment today may be moderate.
Intraday outlook for EUR/USD and trading tips
It makes sense to sell EUR/USD today if the price drops from 1.0883 on the 1-hour chart with a target of 1.0823. Yesterday, consolidation at 1.0883 made it possible to open short positions with the same target. This trading plan worked out well. Buying could be considered if the instrument rebounds from 1.0823 on the 1-hour chart with a target of 1.0883. Now these positions can be kept open.