EUR/USD 4H.
Last trading week, EUR/USD climbed a few dozens of pips. But this is not the most important. The thing is that a promising bearish trend which originated in 2021 can complete in the nearest time or perhaps has been already over. Having declined to 1.2060, the pair made another attempt to break it, though without any success. Moreover, at the second attempt, EUR/USD failed even to reach it. The bears were trying to approach this level for two days and each time was a failure. I spotted candlesticks with very long shadows on January 27 – 28. This means that the bears were exhausted to repeat the test of 1.2060. If so, either the downtrend is over or it needs serious fundamental factors to continue. From the technical point, the pair seems to have completed a downward correction after 2-3 months of the uptrend. Now the pair is likely to get ready for a new round of the uptrend. I assume it is premature to give up on the US dollar. Nevertheless, the fact is that the US currency is extending a losing streak.
COT report
For the trading week of January 19 – 15, EUR/USD rose by 60 pips. Thus, the outlook for the long-term uptrend is still valid. So, it can resume anytime. The COT report mirrors trading sentiment of large market players. The recent report does not reveal waning interest in the single European currency. On the contrary, two weeks ago the COT report logged a sharp increase of the bullish sentiment among non-commercial traders. In that week, they opened 8,000 more long contracts. The latest COT report which was released overnight again did not show great changes with the overall bullish sentiment. This time, non-commercial traders opened 3,300 long contracts on EUR/USD and closed 1,200 short contracts.
All in all, the net positions for professional traders surged by 4,500. Not too many, but not too few. In essence, such figures do now allow analysts to affirm that the uptrend is over. Of course, it does not mean that EUR is unlikely to fall until large market players trim the number of buy contracts. Judging by the COT report, we cannot make a conclusion about a completion of the uptrend.
The US dollar came under spotlight for the whole trading week. Just a few events happened last week, but some of them were crucial for the US dollar. Unfortunately, none of them supported the greenback. For your reference, some analysts reckon that the severe downturn in the US economy in Q2 2020 is to blame for protracted USD weakness over the last 10 months. Another reason is massive cash injections into the US economy. Hence, if these suggestions are right, a new round of cash injections will trigger another decline of the greenback. Such prospects are around the corner. Indeed, Congress will hardly approve the stimulus package worth $1.9 trillion proposed by Joe Biden. To sum up, in addition to the financial aid of $4 trillion in 2020 allocated in 2020, the government will provide a relief package of nearly $2 trillion this year. This will erase 5-6 cents of the US dollar against the euro.
Apart from Joe Biden and Congress, the greenback was hurt by Treasury Secretary Janet Yellen. She stated that the US would not try to impact on the US dollars' forex rate. Besides, Federal Reserve Chair Jerome Powell sounded pessimistic at the press conference unveiling the policy update of the latest policy meeting. The final nail in the coffin came from the US GDP report. The actual figure undershot the expected score. The US national output expanded 4.0% in Q4 2020. On the one hand, it is a decent growth, but on the flip side, the reading was worse than expected. Bearing in mind a sharp contraction in Q2 2020, the US economy is still far below the pre-pandemic levels. That's what Jerome Powell told about on Wednesday. Last but not least, the coronavirus pandemic is still raging across the world.
Trading plan for week February 1 – 5:
1)This week, EUR/USD make attempts to carry on with the downtrend. However, all efforts were in vain. At the end of the trading week, the pair was trapped in a narrow range, so the market looked like flat. All lines of the Ishimoku indicator are close to each other. Thus, they don't have enough power and we cannot trade the pair with its help. Beginners are recommended to trade from 1.2060 considering Bollinger bands. If this level is not surpassed and Bollinger bands could reverse upwards, this will mean a strong likelihood of the new uptrend with the first upwards targets at resistance of 1.2223 and 1.2274.
2)The downtrend seems to have begun but it did not last for long. While the price is above 1.2060, we cannot speak about a new round of the downtrend. If the price manages to breach it, we will be able to trade downwards with the downward target at support of 1.2002. Make sure you trade cautiously as the US dollar finds it hard to gain ground.
Notes for the pictures
The resistance/support levels are the target levels when opening long/short positions. You can place take profit levels next to them.
Indicators Ishimoku, Bollinger bands, MACD
Areas of support and resistance are the ones from where the price has rebounded or has been rejected a few times.
Indicator 1 in the COT charts is a size of net positions for each category of traders.
Indicator 2 in the COT charts is a size of net positions for the non-commercial group.
The material has been provided by InstaForex Company - www.instaforex.com