EUR/USD 5-Minute Analysis
The EUR/USD currency pair experienced a moderate decline on Friday. As mentioned previously, the euro could have lost significantly more value over the past week; however, the market largely overlooked most of the negative data coming from the Eurozone. We believe that, eventually, market participants will revisit this new wave of negativity from the EU, similar to how they did in September 2024 when they acknowledged the significant imbalance between the European Central Bank and the Federal Reserve's monetary policies. Therefore, from any perspective, the euro's trajectory appears to be downward.
The local macroeconomic landscape is also unable to support the euro. Just last week, the Q4 GDP in the EU was weak once again, with similar results reported for Germany. Virtually all economic reports from Germany showed negative figures. On Friday, it was revealed that German inflation had significantly decreased, retail sales had declined, and the unemployment rate had increased. Given these factors, it's difficult to expect the euro, which recently rose over the past three weeks mainly due to technical reasons, to maintain its strength. Remember that the ECB has decided to cut interest rates again and may lower them to 2% by mid-2025. There are no guarantees that the easing will stop there, especially since the European economy continues to deliver "remarkable" results.
Among Friday's trading signals, we can only highlight a rebound from the 1.0366-1.0381 range. After this signal formed, the price rose by approximately 30-40 pips but quickly returned to its starting position. As a result, while there was no loss on the long position, significant profits from this signal were also unlikely.
COT Report
The latest COT report is dated January 28. The chart clearly shows that the net position of non-commercial traders remained bullish for an extended period; however, bears have now gained the upper hand. Two months ago, professional traders sharply increased the number of short positions, causing the net position to turn negative for the first time in a long time. This shift indicates that the euro is being sold more frequently than it is being bought.
Currently, there are no fundamental factors supporting the euro's strength. The recent upward movement of the euro on the weekly timeframe is barely noticeable and can be seen as just a simple pullback. While the pair may correct for a few more weeks, this does not change the 16-year downtrend.
At present, the red and blue lines have crossed and changed their relative positions, indicating a bearish trend in the market. Over the last reporting week, the number of long positions in the non-commercial group decreased by 14,000, while short positions fell by 9,900. As a result, the net position decreased by another 4,100 contracts.
EUR/USD 1-Hour Analysis
On the hourly timeframe, the pair has finished its local uptrend, and a new descending trendline has formed. We believe the decline will resume in the medium term. The Fed may only lower interest rates 1-2 times in 2025, which is a more hawkish stance than what the market anticipated. This factor, among others, should support the US dollar moving forward. Both the Senkou Span B line and the trendline have been broken, indicating that the euro is likely to decline over the upcoming week.
For February 3, we highlight the following trading levels: 1.0124, 1.0195, 1.0269, 1.0340-1.0366, 1.0461, 1.0524, 1.0585, 1.0658-1.0669, 1.0757, 1.0797, and 1.0843, along with the Senkou Span B (1.0381) and Kijun-sen (1.0458) lines. Please note that the Ichimoku indicator lines can shift throughout the day, which should be considered when identifying trading signals. It's advisable to set a Stop Loss to breakeven if the price moves 15 pips in the desired direction. This will help protect against potential losses if the signal turns out to be false.
On Monday, manufacturing sector PMI reports are scheduled for release in both the Eurozone and the US. However, these reports are unlikely to be the key drivers for the pair. Inflation in the EU may continue to slow, bringing the ECB closer to a dovish stance. Additionally, the ISM Manufacturing PMI in the US significantly influences the market compared to the standard S&P indices.
Illustration Explanations:
- Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
- Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
- Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
- Yellow Lines: Trendlines, trend channels, or any other technical patterns.
- Indicator 1 on COT Charts: Represents the net position size for each category of traders.
