EUR/USD 5-Minute Analysis
On Tuesday, the EUR/USD pair began its decline during the European trading session. The only economic release of the day, Germany's Consumer Price Index, cannot be attributed as the cause of the euro's fall, as it was a second estimate aligned with forecasts. Typically, accelerating inflation would suggest a more hawkish stance from the European Central Bank, which should support the euro rather than weaken it. Thus, there are two possible explanations for the dollar's rise yesterday. The first is technical. The price corrected against the new downward trend and is now resuming its decline. The second is macroeconomic. Today's U.S. inflation report is expected to increase, implying that the Federal Reserve might leave its key interest rate unchanged at the December meeting.
In general, we anticipate further strengthening of the U.S. dollar. The specific outcome of the inflation report—whether it shows acceleration or not—is of secondary importance. Even if November inflation does not rise, this would temporarily prolong the corrective phase. The dollar needs to break below the Senkou Span B line in the near term, which would provide technical confirmation of the resumed downtrend.
Yesterday, one trading signal was generated on the 5-minute timeframe. The price broke through the area defined by the 1.0533 level and the Kijun-sen line at 1.0550. Although a significant drop did not follow, if the downtrend has resumed, a sell position could be held for an extended period. Today's market movement will largely depend on the U.S. inflation report, which could extend the corrective phase. However, current indications suggest a likely continuation of the downtrend.
COT Report
The latest Commitment of Traders (COT) report is dated December 3. As shown in the chart, the net position of non-commercial traders remains "bullish," though bears are gradually gaining ground. About six weeks ago, professional traders significantly increased their short positions, turning the net position negative for the first time in a long while. This indicates that the euro is now being sold more frequently than bought.
Fundamentally, there are no clear reasons for euro appreciation. Technically, the pair remains in a consolidation zone or a flat trend. On the weekly chart, EUR/USD has been trading between 1.0448 and 1.1274 since December 2022, making further declines more likely. A breakout below 1.0448 could open new downside potential for the euro.
The red and blue lines have crossed, signaling a bearish market trend. During the latest reporting week, the number of long positions among the "non-commercial" group increased by 11,400, while short positions rose by 12,800. As a result, the net position decreased by 1,400.
EUR/USD 1-Hour Analysis
On the hourly timeframe, the pair continues to correct and remains within a visible horizontal channel. The correction is complex and slow, as we anticipated. We still believe there are no grounds for significant euro strength, so we will wait for the correction to end and for the pair to resume its decline toward price parity. For instance, a break below the Senkou Span B line would signal a potential resumption of the downtrend.
For December 11, we highlight the following levels for trading - 1.0269, 1.0340-1.0366, 1.0485, 1.0585, 1.0658-1.0669, 1.0757, 1.0797, 1.0843, 1.0889, 1.0935, as well as the Senkou Span B (1.0464) and Kijun-sen (1.0551) lines. The Ichimoku indicator lines may shift during the day, so traders should account for these changes when identifying signals. Set Stop Loss orders to break even if the price moves 15 pips in the correct direction. This helps protect against potential losses if the signal turns out to be false.
On Wednesday, the Eurozone calendar is empty. In the U.S., the "report of the week" will be released: inflation data. As mentioned earlier, this report is critical and will heavily influence the Fed's decision next week. The market reaction to the inflation report could be even stronger than the reaction to the Fed's meeting itself.
Illustration Explanations:
- Support and Resistance Levels (thick red lines): Key areas where price movement might stall. Not sources of trading signals.
- Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the H4 timeframe to the hourly chart, serving as strong levels.
- Extreme Levels (thin red lines): Points where the price has previously rebounded. They can serve as trading signal sources.
- Yellow Lines: Trendlines, channels, or other technical patterns.
- Indicator 1 on COT Charts: Reflects the net position size of each trader category.
