Trading Recommendations and Analysis for EUR/USD on February 2. The Dollar Unexpectedly Interests the Market

[Ben Graham]

Analysis of EUR/USD 5M

The EUR/USD currency pair has been in a downward movement during Thursday and Friday, which began on Wednesday. Recall that it was on Wednesday that the first Federal Reserve meeting of the year took place, where absolutely no important decisions were made. Moreover, the dollar's rise began about 10 hours before the announcement of the meeting results, so this event could not have triggered the sharp rise of the dollar, which has been ongoing for three days. Additionally, the new "shutdown" in the US, which began on January 31, could not have had a positive influence on the dollar either. A potential Trump attack on Iran has not yet occurred, but this factor does not appear to be a growth driver for the US currency. In our view, there were no reasons to strengthen the US dollar, and the movement was purely technical.

Nevertheless, on the hourly timeframe, the EUR/USD pair has consolidated below the trendline and a critical line. Therefore, the decline may continue in the near future, targeting the Senkou Span B line. Near this line, the correction is likely to end (which is more probable), or we may have to prepare for a new, unsubstantiated strengthening of the dollar. The fundamental background remains extremely important for the market, and this week will see macroeconomic developments and the meetings of the UK and US central banks influencing the pair.

On the 5-minute timeframe, two trading signals were formed on Friday. Initially, the pair bounced from the resistance area of 1.1904-1.1922 but managed to rise only 20 pips, which was enough to set the Stop Loss order at breakeven. A sell signal was then generated when the price broke through the specified area. By the end of the day, the euro moved in the desired direction by 40 pips, which traders could capitalize on.

COT Report

The latest COT report is dated January 27. The illustration above clearly indicates that the net position of non-commercial traders remains "bullish." Since Trump took office as President of the United States for the second time, only the dollar has been falling. We cannot assert with 100% certainty that the decline of the US currency will continue, but current developments worldwide suggest this is a possibility.

We still do not see any fundamental factors supporting the strengthening of the euro, while there are enough factors for the decline of the US dollar. The global downward trend remains intact, but what does it matter now, where the price has moved in the last 18 years? A new upward trend has been forming over the last three years, breaking through the global downward trend line. This trend line may be the cause of the downward pullback.

The positioning of the red and blue lines of the indicator continues to indicate the maintenance of a "bullish" trend. Over the last reporting week, the number of longs in the "Non-commercial" group increased by 15,100, while the number of shorts decreased by 5,300. Consequently, the net position increased by 20,400 contracts over the week.

Analysis of EUR/USD 1H

On the hourly timeframe, the EUR/USD pair continues to form an upward trend despite breaking through the trend line and the subsequent correction. The pair has officially left the sideways channel of 1.1400-1.1830, in which it spent seven months. Therefore, we still expect further growth of the euro currency in the near future. Donald Trump will continue to use tariffs as a primary tool to push his interests, applying pressure on the Fed and supporting the dollar's decline.

For February 2, we highlight the following levels for trading: 1.1362, 1.1426, 1.1542, 1.1604-1.1615, 1.1657-1.1666, 1.1750-1.1760, 1.1830-1.1837, 1.1907-1.1922, 1.1971-1.1988, 1.2051, 1.2095, as well as the Senkou Span B line (1.1743) and the Kijun-sen line (1.1965). The Ichimoku indicator lines may shift throughout the day, which should be taken into account when determining trading signals. Do not forget to set a stop-loss order to breakeven if the price moves in the right direction by 15 pips. This will protect against possible losses if the signal turns out to be false.

On Monday, indexes of business activity in the manufacturing sectors are scheduled for publication in the Eurozone, Germany, and the US. The European indices hold no value, as they will be released in second estimates. In the US, the ISM index is the one that deserves traders' primary attention.

Trading Recommendations:

On Monday, traders may trade from the area of 1.1830-1.1837. New longs will become relevant on a bounce from this area with targets of 1.1907-1.1922 and 1.1965. Short positions can be considered if the price consolidates below this area with a target of 1.1750-1.1760.

Explanations for Illustrations:

• Support and Resistance Levels – thick red lines, where movement may come to a halt. These are not sources of trading signals.
• Kijun-sen and Senkou Span B Lines – lines from the Ichimoku indicator, transferred to the hourly timeframe from the 4-hour timeframe. They are strong lines.
• Extremum Levels – thin red lines, from which the price has 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.

The material has been provided by InstaForex Company - www.instaforex.com