Analysis of the EUR/USD pair for the June 19-23 trading week. COT report. Meaningless speeches by ECB representatives
June 25, 2023 2:22 pm
Long-term perspective.
The EUR/USD currency pair attempted to continue its upward movement during the current week, but the bulls began to retreat in the second half of the week. Currently, on the 24-hour timeframe, the pair is moving in a highly chaotic and tangled manner. It is worth recalling that the price dropped below the Ichimoku cloud not long ago, which opened up excellent downward prospects. Almost all indicators turned downwards. However, there was a subsequent upward reversal and a new wave of upward movement. Overall, the pair has been trading between the levels of 1.05 and 1.11 for six months now. The current movement can hardly be called a “flat” or “swing”; instead, it is consolidation. However, despite the consolidation, there are no grounds for the European currency to grow.
This week, there were a series of speeches by representatives of the central bank’s monetary committee in the European Union. It cannot be said that they were important or provided new information. A rate hike in July is practically guaranteed at this time because the ECB has been indicating for several months now that it will raise the rate to 4.25%. However, what will happen next remains shrouded in mystery? Some ECB representatives are already doubting the advisability of raising the rate in the fall and winter. This is not surprising, considering the recent business activity indices, which have shown a sharp deterioration in the services and manufacturing sectors. It would be one thing if the business activity index in the manufacturing sector had yet to approach the 40 mark, which is a very low value, and if the GDP had not been in negative territory for two consecutive quarters.
Thus, the ECB rate will not increase significantly compared to current levels in 2023. This means that there are no new grounds for the euro to grow. It has already been stagnant for 4-5 months but remains at a very high level. The MACD indicator has already shown several “bearish” divergences, but the decline has not yet begun.
COT Analysis.
A new COT report for June 20 was released on Friday. Over the past ten months, the COT report data has fully corresponded to what has been happening in the market. As seen in the above illustration, the net position of large players (second indicator) began to rise as early as September 2022. Around the same time, the European currency also started to rise. The net position of non-commercial traders remains very high and bullish, and the European currency remains at a very high level against the dollar.
We have already drawn traders’ attention to the fact that a relatively high value of the “net position” suggests the possibility of an end to the upward trend. This is indicated by the first indicator, where the red and green lines have moved far apart, often preceding a trend’s end. The European currency attempted to start a decline several months ago, but we saw only a simple and not very strong correction. During the last reporting week, the number of buy contracts for the “Non-commercial” group increased by 3.2 thousand, while the number of shorts increased by 10.4 thousand. Consequently, the net position decreased by 7.2 thousand contracts. The number of buy contracts is higher than that of sell contracts by 145 thousand for non-commercial traders, which is a very large gap. The difference is almost threefold. A correction has begun, and it may not be a mere correction but the start of a new downward trend. Even without COT reports, it is evident that the pair should continue to decline.
Fundamental Event Analysis.
There were almost no macroeconomic data in the European Union this week. Only the business activity indexes in EU countries can be noted, which, as we have already mentioned, showed very weak values. The stronger the ECB rate rises, the more the economy of the European Union will contract. The European regulator is not ready to raise the rate until inflation drops to 3-4%, and it is these actions that are necessary to seriously consider a return to 2% within a perspective of 1-2 years. On the other hand, the Fed is ready to raise its rate twice more, as stated by Mary Daly on Friday. Of course, this is just one opinion of one official, but Jerome Powell stated this week that there is solidarity within the monetary committee regarding monetary policy. We still believe that the dollar has more grounds to rise.
Trading plan for the week of June 26-30:
In the 24-hour timeframe, the pair stayed above the critical line but failed to exit the Ichimoku cloud. Despite the two main indicator lines being below, we have doubts about continuing the upward movement. The consolidation is prolonged, and the pair cannot break out of the range of 1.05-1.11. The price will continue to stay within this range. There are no grounds for it to rise above 1.1100, and it still needs to drop to 1.0500 before we can expect a further decline. We do not recommend considering buying at the moment.
As for selling the euro/dollar pair, on the 24-hour timeframe, positions can be opened after overcoming the Kijun-sen and Senkou Span B lines, targeting the range of 1.05-1.06. The euro currency remains overbought, making a decline the more likely scenario.
Explanations for the illustrations:
Support and resistance levels, Fibonacci levels – these are the target levels when opening buys or sells. Take Profit levels can be placed near them.
Long-term perspective.
The EUR/USD currency pair attempted to continue its upward movement during the current week, but the bulls began to retreat in the second half of the week. Currently, on the 24-hour timeframe, the pair is moving in a highly chaotic and tangled manner. It is worth recalling that the price dropped below the Ichimoku cloud not long ago, which opened up excellent downward prospects. Almost all indicators turned downwards. However, there was a subsequent upward reversal and a new wave of upward movement. Overall, the pair has been trading between the levels of 1.05 and 1.11 for six months now. The current movement can hardly be called a “flat” or “swing”; instead, it is consolidation. However, despite the consolidation, there are no grounds for the European currency to grow.
This week, there were a series of speeches by representatives of the central bank’s monetary committee in the European Union. It cannot be said that they were important or provided new information. A rate hike in July is practically guaranteed at this time because the ECB has been indicating for several months now that it will raise the rate to 4.25%. However, what will happen next remains shrouded in mystery? Some ECB representatives are already doubting the advisability of raising the rate in the fall and winter. This is not surprising, considering the recent business activity indices, which have shown a sharp deterioration in the services and manufacturing sectors. It would be one thing if the business activity index in the manufacturing sector had yet to approach the 40 mark, which is a very low value, and if the GDP had not been in negative territory for two consecutive quarters.
Thus, the ECB rate will not increase significantly compared to current levels in 2023. This means that there are no new grounds for the euro to grow. It has already been stagnant for 4-5 months but remains at a very high level. The MACD indicator has already shown several “bearish” divergences, but the decline has not yet begun.
COT Analysis.
A new COT report for June 20 was released on Friday. Over the past ten months, the COT report data has fully corresponded to what has been happening in the market. As seen in the above illustration, the net position of large players (second indicator) began to rise as early as September 2022. Around the same time, the European currency also started to rise. The net position of non-commercial traders remains very high and bullish, and the European currency remains at a very high level against the dollar.
We have already drawn traders’ attention to the fact that a relatively high value of the “net position” suggests the possibility of an end to the upward trend. This is indicated by the first indicator, where the red and green lines have moved far apart, often preceding a trend’s end. The European currency attempted to start a decline several months ago, but we saw only a simple and not very strong correction. During the last reporting week, the number of buy contracts for the “Non-commercial” group increased by 3.2 thousand, while the number of shorts increased by 10.4 thousand. Consequently, the net position decreased by 7.2 thousand contracts. The number of buy contracts is higher than that of sell contracts by 145 thousand for non-commercial traders, which is a very large gap. The difference is almost threefold. A correction has begun, and it may not be a mere correction but the start of a new downward trend. Even without COT reports, it is evident that the pair should continue to decline.
Fundamental Event Analysis.
There were almost no macroeconomic data in the European Union this week. Only the business activity indexes in EU countries can be noted, which, as we have already mentioned, showed very weak values. The stronger the ECB rate rises, the more the economy of the European Union will contract. The European regulator is not ready to raise the rate until inflation drops to 3-4%, and it is these actions that are necessary to seriously consider a return to 2% within a perspective of 1-2 years. On the other hand, the Fed is ready to raise its rate twice more, as stated by Mary Daly on Friday. Of course, this is just one opinion of one official, but Jerome Powell stated this week that there is solidarity within the monetary committee regarding monetary policy. We still believe that the dollar has more grounds to rise.
Trading plan for the week of June 26-30:
Explanations for the illustrations:
Support and resistance levels, Fibonacci levels – these are the target levels when opening buys or sells. Take Profit levels can be placed near them.
Indicators used: Ichimoku (default settings), Bollinger Bands (default settings), MACD (5, 34, 5).
Indicator 1 on the COT charts – the size of the net position for each category of traders.
Indicator 2 on the COT charts – the size of the net position for the “Non-commercial” group.
The material has been provided by InstaForex Company – www.instaforex.com
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