The EUR/USD currency pair continued its movement from Wednesday for most of Thursday. Recall that on Wednesday evening, the FOMC meeting took place, during which traders once again heard no direct promises from Kevin Warsh regarding a rate hike, leading to significant disappointment. This triggered a decline in the dollar, which had either risen or stagnated over the past month and a half for no particular reason. On Thursday, absolutely all macroeconomic data favored the euro, and the market finally did not ignore this but reacted accordingly.
Let's start with the European GDP. In Germany, GDP growth was 0.2% in the second quarter, while in the EU, it was 0.4%. In both cases, the forecasts were lower. Inflation in Germany rose more sharply than expected, increasing the likelihood of a European Central Bank rate hike in September. The cherry on top was the US GDP report, which came in 0.6% below forecasts. Thus, the four most important reports were failures for the dollar and positive for the euro. However, even without this data, we have been stating for an entire month that the euro should rise significantly.
From a technical perspective, the pair has exited the sideways channel of 1.1362-1.1461 after a month of struggling. Now traders are justified in expecting not just an upward trend but a full-fledged trend. Recall that over the past year, the EUR/USD pair mostly moved sideways, and there have been no strong foundations for a long-term dollar trend.
On the 5-minute time frame on Thursday, two trading signals were generated. At the start of the American trading session, the pair broke through the 1.1461-1.1473 range, allowing traders to open long positions. Within an hour, the price reached the 1.1536-1.1542 area and bounced off, allowing shorts to be opened. The profit from the second trade was unlikely to be significant, but the first brought a decent return.
The latest COT report is dated July 21. The illustration on the weekly time frame clearly shows that the net position of non-commercial traders has become bearish and has significantly decreased due to geopolitical events. Traders have been shedding the euro in favor of the US dollar in recent months. Donald Trump's policies have not changed, but the dollar has served as a "reserve currency" for some time.
We still do not see any fundamental factors supporting a strengthening of the euro, yet there are plenty of factors that could lead to a decline in the dollar. The war in the Middle East made the dollar super attractive for a time, but when this factor expires, everything will revert to the norm. In the long term, the euro could fall to the level of $1.08 (the trend line), but the upward trend will still remain relevant. Over the past months of dollar growth, the pair has not come significantly closer to that trend line.
The positioning of the red and blue lines in the indicator indicates parity between bulls and bears. During the last reporting week, the number of long positions in the "Non-commercial" group decreased by 9,800, while the number of shorts increased by 18,900. Accordingly, the net position fell by 28,700 contracts over the week.
On the hourly time frame, the pair has begun a new upward trend after a month-long pause. The situation in the Middle East remains tense and has not improved, but this alone is not enough to drive renewed dollar strength. The market has been ignoring all positive factors for the euro in recent months. If the situation has changed, the European currency has the opportunity to account for all the past news/events/reports that the market ignored.
For July 31, we highlight the following trading levels: 1.1234, 1.1274, 1.1362-1.1368, 1.1461-1.1473, 1.1536-1.1542, 1.1585, 1.1657-1.1666, 1.1750-1.1760, 1.1786, 1.1830-1.1837, as well as the Senkou Span B line (1.1424) and the Kijun-sen line (1.1446). The Ichimoku indicator lines may move throughout the day, which should be taken into account when determining trading signals. Do not forget to set a Stop Loss order at breakeven if the price moves in the right direction by 15 pips. This will protect against potential losses if the signal proves false.
On Friday, a report on inflation for the Eurozone in July will be released, which could exceed forecasts. In that case, the likelihood of the ECB tightening monetary policy in September will increase further. The remaining reports of the day are of secondary importance.
Today, traders may consider short positions with targets of 1.1461-1.1473, as the price has bounced off the 1.1536-1.1542 area. A consolidation above the area of 1.1536-1.1542 will allow for the opening of long positions with targets at 1.1585 and 1.1657-1.1666.
*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.
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