EUR/USD corrected slightly higher on Wednesday, but it still failed to reach the critical line. The pair saw little volatility. The euro sharply fell on Tuesday, but at that time, it was pulled down by the U.S. inflation report. However, no one said that the euro should lose 50-100 pips every day. We believe that the euro will gradually fall.
It is interesting that the pair could have grown much stronger on Wednesday. The EU released two reports that could have supported the buyers. However, the eurozone economy stalled on a quarterly basis with a preliminary reading of 0%. Meanwhile, industrial production significantly exceeded forecasts, but the market considered this report secondary of importance. Yesterday, we mentioned that it would be difficult for the euro to count on support, and that the reports were loud only on paper.
Therefore, the technical picture has not changed at all over the past day. The euro still lacks any growth factors, as economic reports increasingly work in favor of the dollar, and the lower likelihood of the Federal Reserve's monetary easing in March and beyond may provide support to the dollar. We believe that the euro must show a pronounced decline, at least another 300-400 pips.
Speaking of trading signals, the pair did not form any relevant entry signals yesterday. This is not surprising at all considering that volatility was only around 40 pips. Throughout the day, the price did not even approach any important lines or levels. Thus, there were no reasons to open trades yesterday.
COT report:The latest COT report is dated February 6. The net position of non-commercial traders has been bullish for quite some time. The number of long positions is much higher than the number of short positions. However, in recent weeks, the number of longs has been decreasing, while the number of shorts is rising, which aligns with the euro's current movement and our expectations.
We believe that the euro should fall and the uptrend must end. During the last reporting week, the number of long positions for the non-commercial group increased by 2,000, while the number of short positions increased by 28,800. Accordingly, the net position fell by 16,600. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 62,000. The gap is quite large, but we're starting to see a noticeable change. Even without COT reports, it is clear that the euro should fall further.
Analysis of EUR/USD 1HOn the 1-hour chart, the downtrend persists. In our opinion, all the factors currently suggest that the dollar will strengthen. Yesterday, the UK inflation report supported the US currency, but it's worth noting that this is not the first report or event that has provided support to the dollar. In general, the fundamental background currently works in favor of the US currency. Therefore, we expect the euro to fall. The nearest target is the 1.0658-1.0669 area.
On February 15, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0823, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B (1.0813) and Kijun-sen (1.0751). The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a breakeven Stop Loss if the price has moved in the intended direction by 15 pips. This will protect you against potential losses if the signal turns out to be false.
On Thursday, European Central Bank President Christine Lagarde will speak. Since her rhetoric has recently been shifting towards a more dovish tone, it is possible that today we will hear some "soft" statements. Such statements potentially poses a threat to the euro. The U.S. will release three minor reports on industrial production, retail sales, and jobless claims. We believe that the reaction to them will be weak and will not affect the overall technical picture. The euro may continue to fall.
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.