FX.co ★ Outlook for EUR/USD on January 5. Dollar hopes for Nonfarm support

Analysis of EUR/USD 5M

On Thursday, EUR/USD tried to continue the bullish correction after settling above the 1.0935 level, but it was quite weak. It appears that the price stayed within a limited price range throughout the day, and volatility was quite low. Therefore, the price did not reach the critical line or the Senkou Span B line. However, this does not mean that it won't succeed in doing so.

Today, the US will release three important reports, which could trigger both a significant increase and decrease in the currency pair. We cannot speculate on which direction the pair will move after the release of US data as it is impossible to predict the actual values of the NonFarm Payrolls, unemployment, and ISM reports. Therefore, we cannot predict which way the euro will move during the US session.

However, US reports are not the only important events for today. The eurozone Consumer Price Index for December is set to be released, which is expected to accelerate to 3%. If this happens, the European Central Bank will have fewer reasons to start a cycle of monetary easing. This is a hawkish factor for the euro. Therefore, everything will start with the inflation report.

In terms of technical analysis, there's a good chance of a correction, as the price continues to trade above the 1.0935 level. Speaking of Thursday's trading signals, all of them were formed around the 1.0935 level. The first sell signal turned out to be false and resulted in a small loss, while the two others (buy signals) were correct but weak. In the first case, the price only rose by 27 pips, and in the second case, even less.

COT report:

The latest COT report is dated December 26. In the first half of 2023, the net position of commercial traders hardly increased, but the euro remained relatively high during that period. Then, the euro and the net position both fell for several months, as we anticipated. However, in the last few weeks, both the euro and the net position have been rising. Therefore, we can conclude that the pair is correcting higher, but the corrections cannot last forever because they are just corrections.

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, these lines are moving apart again. Therefore, we support the scenario where the euro should fall and the upward trend must end. During the last reporting week, the number of long positions for the non-commercial group increased by 3,100, while the number of short positions increased by 300. Consequently, the net position increased by 2,800. The number of buy contracts is still higher than the number of sell contracts among non-commercial traders by 118,000. The gap is significant, and even without COT reports, it is clear that the euro should continue to fall.

Analysis of EUR/USD 1H

On the 1-hour chart, EUR/USD has settled below the Kijun-sen line, Senkou Span B line, and the channel, which suggests the possibility of a new downtrend. Currently, the price is above the 1.0935 level, indicating the possibilities of a corrective movement. In terms of technical analysis, we expect the price to rise towards the Senkou Span B and Kijun-sen lines today. However, overall, we continue to advocate for a prolonged and pronounced decline in the euro.

Today, we deem it reasonable to look for upward movement in case the price rebounds from the 1.0935 level. The targets are indicated above. In case the pair settles below 1.0935, we would consider selling while aiming for at least 1.0889.

On January 5, we highlight the following levels for trading: 1.0658-1.0669, 1.0757, 1.0818, 1.0889, 1.0935, 1.1006, 1.1092, 1.1137, 1.1185, 1.1234, 1.1274, as well as the Senkou Span B (1.1014) and Kijun-sen (1.0990) lines. The Ichimoku indicator lines can shift 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.

Several important reports are set for release today. The eurozone will publish a crucial inflation report. From the US docket, there will be the NonFarm Payrolls, unemployment, and the ISM Business Activity Index in the services sector. All of these reports can provoke strong reactions and significant movements, as well as abrupt price reversals during their release.

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.