FX.co ★ Analysis and forecast of the dynamics of EUR/USD pair based on COT (Commitment of Traders) report (there is still a high probability for the pair's decline)

EUR/USD pair:

As before, the main negative factor for the pair is the drop in expectations that the ECB may not only decide not to maintain the current "soft" monetary policy this year, but also move on to increase incentive measures. This will ultimately weaken the single European currency in the future, which has already been observed in the last two months. In addition, an important factor remains weak economic growth in the euro region and the uncertainty of the consequences of Britain's exit from the EU on the eurozone economy, as indicated by the latest economic statistics.

The dynamics of the futures on EUR, according to COT reports (Commitments of Traders) provided by the Commodity Futures Trading Commission (CFTC) for the last week, which ended on 02/14, indicates that large traders continued to build up net speculative selling positions, which amounted to -85,700 contracts against -58,900 a week earlier. This is a quite noticeable increase in sales volumes. Why is it that the actions of large investors (Large Traders) should be paid attention to? Because it is they that form the significant and stable trends in the markets or directed movements in asset prices. As shown in the graph, the same dynamics is supported by small investors (Small Traders), unlike hedgers (Commercial Hedgers), who always stand in the opposite direction.

At the same time, what's interesting is the distribution of short and long positions on the EUR/USD pair on 11.02. Here, the pair's decline clearly evident in the wake of the negative dynamics of the futures contract, despite the attempt of some local recovery in demand for the euro in the middle of the week, which was unsuccessful by the end of the week. Then by the middle of the week, the number of short positions increased to 192 307, and long positions decreased to 122 489. The data are presented in the table on the chart below.

Another important indicator of the prospective weakening of the EUR/USD pair is the growth trend of the dollar futures, which rose to the resistance level of 99.00 points according to the results of the week. The COT (Commitments of Traders) report shows an increase in the number of contracts of large traders (Large Traders) for the purchase of the dollar by 19 479. (Fig. 3)

However, the question arises: is the dollar exchange rate at a strong resistance level of 99.00? If it overcomes it and consolidates above, then we should expect a further decline of the EUR/USD pair. So far, the COT (Commitments of Traders) reports on EUR and USD confirm this prospect. In this regard, large traders still trade on further weakening of the EUR, and their opinion is decisive in the market, and the distribution of positions of major players remains decisive.

Weekly forecast:

Based on this, we believe that the EUR/USD on the spot can continue to decline this week. Moreover, it may decline to around 1.0735 towards its end, despite technical oversold. Thus, the situation can only change if extremely weak data on the US economy and, on the contrary, strong values in the eurozone are released; however, this probability remains low. We expect the closest correction for the pair in the middle of the week, when updated data on the distribution of net positions for the pair come out. (Fig. 4)