Analysis of the trading week of July 3-7 for the EUR/USD pair. COT report. The U.S. labor market showed conflicting figures
July 9, 2023 12:22 pm
Long-term perspective.
The EUR/USD currency pair traded weakly and reluctantly throughout the current week. Despite many macroeconomic reports, we only saw strong movement on Friday. It should be noted that the reports for the first three days were not the most significant, or more precisely, their values did not impress the market. Therefore, virtually all business activity indices in the US, Germany, and the EU (some of which were published in the second estimate) should have been addressed. Thursday and Friday were noticeably more interesting, but the market only processed the Friday reports of NonFarm Payrolls and unemployment.
It should be noted that the NonFarm Payrolls report was weaker than the forecasts, but not by much. The previous value of the report was revised downward, but slightly, and it exceeded the forecasts anyway. The unemployment rate decreased, which did not support the American currency. As a result, a situation has emerged in which traders gladly worked out all the negatives for the dollar and ignored the positives. We are already accustomed to this scenario, although the European currency has been showing at least more or less logical movements over the past six months. At the very least, it does not constantly and baselessly grow like the pound. It remains quite high and consolidates in the 1.05–1.11 range.
Recall that consolidation is not flat in the pure sense, but there is a certain similarity. There have been no clear movement boundaries for the last six months, and the pair is simply moving within the specified area quite randomly. A slight upward slope is maintained, but the euro lacks the grounds to continue growing. The lines of the Ichimoku indicator currently do not play a significant role, as the movement is largely sideways.
COT analysis.
A new COT report for July 3 was released on Friday. Over the last ten months, the data from the COT reports fully corresponded to what was happening in the market. The illustration above clearly shows that the net position of large players (second indicator) began to grow in September 2022, and the European currency began to grow approximately at the same time. Over the last five months, the net position has not grown, and neither has the euro. Currently, the net position of non-commercial traders is “bullish” and remains very high, while the European currency continues to be positioned very high relative to the dollar.
We have already drawn traders’ attention to the fact that a fairly high “net position” value allows us to assume the completion of the upward trend. The first indicator signals this, where the red and green lines have significantly distanced from each other, which often precedes the end of the trend. During the last reporting week, the number of buy contracts in the “Non-commercial” group decreased by 2.7 thousand, and the number of shorts – by 0.5 thousand. Consequently, the net position decreased by 2.2 thousand contracts, which is very little. The number of buy contracts is higher than the number of sell contracts for non-commercial traders by 143 thousand, which is a very large gap. The difference is almost threefold. In principle, it is now obvious without COT reports that the European currency should continue to decline, but the market is not in a hurry to sell. It may be afraid of a stronger ECB rate increase.
Fundamental events analysis.
This week, the European Union published several indicators that needed to be more crucial. Specifically, we learned about the business activity indices for June in the final estimates, which practically mirrored the initial forecasts. The manufacturing sector continues to contract, as confirmed by data on production volumes and business activity. Indicators are on the decline, as are retail sales volumes. The economy is generally decelerating, which is hardly surprising considering the tightening of monetary policy. The economy’s volumes are teetering on the edge of the negative territory, but a recession hasn’t hit yet. There were several presentations by representatives of the European Central Bank, but they didn’t reveal any new information to the market. Generally, monetary committee members have ceased announcing new plans and remain steadfast in their stance on monetary policy. In the United States this week, the macroeconomic backdrop was much stronger, yet, as mentioned earlier, it significantly impacted the currency pair’s movements only on Friday. Volatility in the euro currency maintains a fairly “average” level.
Trading plan for the week of July 10-14:
On the 24-hour timeframe, the pair continues to be in the consolidation range, and the Ichimoku indicator lines are not now strong and a source of signals. Although the two main indicator lines are at the bottom, we strongly doubt the continuation of the upward movement. Consolidation is delayed, and the pair still cannot leave the $1.05-1.11 range. The price will remain in it. There are no grounds for growth above 1.1100, and you still need to drop to the 1.0500 level to count on continuing the decline. We do not recommend considering long-term purchases at the moment.
As for the sales of the euro/dollar pair, they can be opened on the 24-hour TF after overcoming the Kijun-sen and Senkou Span B lines with the target area of $1.05-1.06. The euro currency remains overbought, so a drop is likely.
Explanations for illustrations:
Support and resistance price levels, Fibonacci levels – are the targets when opening purchases or sales. Take Profit levels can be placed around them.
Long-term perspective.
The EUR/USD currency pair traded weakly and reluctantly throughout the current week. Despite many macroeconomic reports, we only saw strong movement on Friday. It should be noted that the reports for the first three days were not the most significant, or more precisely, their values did not impress the market. Therefore, virtually all business activity indices in the US, Germany, and the EU (some of which were published in the second estimate) should have been addressed. Thursday and Friday were noticeably more interesting, but the market only processed the Friday reports of NonFarm Payrolls and unemployment.
It should be noted that the NonFarm Payrolls report was weaker than the forecasts, but not by much. The previous value of the report was revised downward, but slightly, and it exceeded the forecasts anyway. The unemployment rate decreased, which did not support the American currency. As a result, a situation has emerged in which traders gladly worked out all the negatives for the dollar and ignored the positives. We are already accustomed to this scenario, although the European currency has been showing at least more or less logical movements over the past six months. At the very least, it does not constantly and baselessly grow like the pound. It remains quite high and consolidates in the 1.05–1.11 range.
Recall that consolidation is not flat in the pure sense, but there is a certain similarity. There have been no clear movement boundaries for the last six months, and the pair is simply moving within the specified area quite randomly. A slight upward slope is maintained, but the euro lacks the grounds to continue growing. The lines of the Ichimoku indicator currently do not play a significant role, as the movement is largely sideways.
COT analysis.
A new COT report for July 3 was released on Friday. Over the last ten months, the data from the COT reports fully corresponded to what was happening in the market. The illustration above clearly shows that the net position of large players (second indicator) began to grow in September 2022, and the European currency began to grow approximately at the same time. Over the last five months, the net position has not grown, and neither has the euro. Currently, the net position of non-commercial traders is “bullish” and remains very high, while the European currency continues to be positioned very high relative to the dollar.
We have already drawn traders’ attention to the fact that a fairly high “net position” value allows us to assume the completion of the upward trend. The first indicator signals this, where the red and green lines have significantly distanced from each other, which often precedes the end of the trend. During the last reporting week, the number of buy contracts in the “Non-commercial” group decreased by 2.7 thousand, and the number of shorts – by 0.5 thousand. Consequently, the net position decreased by 2.2 thousand contracts, which is very little. The number of buy contracts is higher than the number of sell contracts for non-commercial traders by 143 thousand, which is a very large gap. The difference is almost threefold. In principle, it is now obvious without COT reports that the European currency should continue to decline, but the market is not in a hurry to sell. It may be afraid of a stronger ECB rate increase.
Fundamental events analysis.
This week, the European Union published several indicators that needed to be more crucial. Specifically, we learned about the business activity indices for June in the final estimates, which practically mirrored the initial forecasts. The manufacturing sector continues to contract, as confirmed by data on production volumes and business activity. Indicators are on the decline, as are retail sales volumes. The economy is generally decelerating, which is hardly surprising considering the tightening of monetary policy. The economy’s volumes are teetering on the edge of the negative territory, but a recession hasn’t hit yet. There were several presentations by representatives of the European Central Bank, but they didn’t reveal any new information to the market. Generally, monetary committee members have ceased announcing new plans and remain steadfast in their stance on monetary policy. In the United States this week, the macroeconomic backdrop was much stronger, yet, as mentioned earlier, it significantly impacted the currency pair’s movements only on Friday. Volatility in the euro currency maintains a fairly “average” level.
Trading plan for the week of July 10-14:
Explanations for illustrations:
Support and resistance price levels, Fibonacci levels – are the targets when opening purchases or sales. Take Profit levels can be placed around them.
Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).
Indicator 1 on COT charts – the size of the net position of each category of traders.
Indicator 2 on 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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