Analysis of EUR/USD 5M
The EUR/USD currency pair continued its upward movement throughout Wednesday, which began on Tuesday. This week, market sentiment regarding the military conflict in the Middle East has sharply improved, which has driven the US dollar lower. Of course, the growth of the European currency could also have been influenced by the European Union's inflation report or Jerome Powell's speech. However, after several days, we believe that 80-90% of the rise in the EUR/USD pair was indeed due to geopolitics. As soon as a truce was mentioned in Iran, the demand for US currency immediately began to decline. When similar rhetoric came from US officials, the dollar continued to rise without concern.
Yesterday, at least three reports of medium significance were published in the US. All three supported the US currency. The ISM Manufacturing PMI index was higher than expected, retail sales exceeded expert forecasts, and the ADP report showed a more positive figure than anticipated. We won't even list the actual figures of these reports, as the market simply ignored them. The US currency fell all day, further proving that the market is currently reacting only to geopolitics. Based on Wednesday's events, we now consider that the EU inflation report or Powell's speech did not hold significant importance for traders.
No trading signals were formed on the 5-minute timeframe yesterday. The last buy signal was formed on Tuesday when the price first broke through the 1.1525-1.1542 area and then bounced off it from above. If traders acted on this signal, they could have secured a profit by Wednesday evening. As for further movement, only geopolitics will determine it. Technical levels will hint at what to expect intraday.
COT Report
The last COT report is dated March 24. The weekly chart clearly shows that the net position of non-commercial traders remains "bullish," but is rapidly declining due to geopolitical events. Traders are massively getting rid of the European currency in favor of the US dollar. Donald Trump's policy has not changed, but the dollar is once again acting as a "reserve currency," which ensures a sharp influx of buyers.
We still do not see any fundamental factors that would strengthen the European currency. However, there are sufficient factors for the decline of the US dollar. The war in the Middle East has made the dollar temporarily super-attractive, but once this factor expires, everything may return to square one. In the long term, the euro could fall to 1.06 (the trend line), but the upward trend will remain relevant.
The positioning of the red and blue lines of the indicator continues to indicate the preservation of the "bullish" trend. During the last reporting week, the number of longs in the "Non-commercial" group decreased by 12,800, while the number of shorts decreased by 1,000. Consequently, the net position declined by 11,800 contracts in just one week.
Analysis of EUR/USD 1H
On the hourly timeframe, the EUR/USD pair changed direction again and began a new upward trend, despite the recent break of the ascending trend line. A new escalation in the Middle East may well change traders' trading priorities again, so any rise should be approached with caution. However, if geopolitics takes a back seat, the European currency may continue its recovery. If the conflict in the Middle East moves towards de-escalation, the pair will continue to rise.
For April 2, we highlight the following trading levels — 1.1234, 1.1274, 1.1362, 1.1426, 1.1542, 1.1615-1.1625, 1.1657-1.1666, 1.1750-1.1760, 1.1830-1.1837, as well as the Senkou Span B line (1.1525) and Kijun-sen line (1.1536). The lines of the Ichimoku indicator may move throughout the day, which should be taken into account when determining trading signals. Don't forget to set a stop-loss order at breakeven if the price moves in the right direction by 15 pips. This will protect against potential losses if the signal turns out to be false.
On Thursday, there are no important events or reports scheduled in the European Union, while only a secondary report on unemployment claims will be released in the US. If the US and Iran continue their conciliatory rhetoric, the euro may continue to rise.
Trading Recommendations:
On Thursday, traders may consider short positions if the price bounces from the 1.1615-1.1625 area with a target of 1.1542. Long positions can be opened with targets of 1.1657-1.1666 and 1.1750 if the price breaks through the 1.1615-1.1625 area.
Explanations for Illustrations:
Support and resistance price levels – thick red lines around which movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines – lines of the Ichimoku indicator transferred from the 4-hour timeframe to the hourly timeframe. They are strong lines.
Extreme levels – thin red lines from which the price previously bounced. They are sources of trading signals.
Yellow lines – trend lines, trend channels, and any other technical patterns.
Indicator 1 on COT charts – the size of the net position for each category of traders.
