Analysis of EUR/USD 5M

The EUR/USD currency pair continued its downward movement on Wednesday without any obvious reasons. While one might believe that the market has been reacting for an entire week to a Federal Reserve meeting in which rates were not even raised, such a conclusion is not at all obvious. The war in the Middle East seems to have ended for at least some time, the Strait of Hormuz is open, and oil prices have fallen to $75 per barrel. Thus, there are grounds to expect a decline in the consumer price index in the coming months as energy price pressures ease. In this case, the Fed could well abandon its tightening policy. Therefore, we do not think that the current rise of the U.S. dollar is connected to the Fed's policy. Moreover, it is not related to geopolitics either since de-escalation in the Middle East should have triggered a decline in the U.S. currency. There were no significant macroeconomic reports released on Wednesday, yet the market spent much of the day buying dollars.

From a technical standpoint, the downward trend continues, but while last Wednesday's dollar growth was justified, it has not been so in the following days. Nevertheless, the trend remains downward, so until it ends, short positions are prioritized. A new trend line cannot yet be formed as there is no second pronounced extreme.

On the 5-minute timeframe on Wednesday, one sell signal was generated. During the European trading session, the price broke below 1.1362, but during the American session, it returned to the signal formation point. The market is currently ignoring everything: trading sessions, levels, geopolitics, macroeconomics, and fundamentals. Therefore, the dollar's growth continues even overnight.

COT Report

The latest COT report is dated June 9. In the weekly timeframe illustration, it is clear that the net position of non-commercial traders remains "bullish," but has significantly decreased due to geopolitical events. Traders have been offloading the European currency in favor of the U.S. dollar in recent months. Donald Trump's policy has not changed, but the dollar has temporarily served as a "reserve currency." However, this process may have already concluded.

We still do not see any fundamental factors for strengthening the European currency, while there are sufficient factors for the decline of the American one. The conflict in the Middle East made the dollar temporarily super attractive, but once that factor's "shelf life" expires, everything will revert to the way it was. And this may have already expired. In the long term, the euro could fall to around 1.08$ (the trend line), but the upward trend will still remain relevant. Moreover, in recent months, the pair has not come significantly closer to this line.

The positioning of the red and blue lines of the indicator indicates parity between bulls and bears. During the last reporting week, the number of longs in the "Non-commercial" group decreased by 15,900, while the number of shorts increased by 19,000. Consequently, the net position fell by 34,900 contracts over the week.

Analysis of EUR/USD 1H

On the hourly timeframe, a strong, baseless downward trend continues to develop. The situation in the Middle East has resolved, thus the dollar can no longer rely on geopolitical support. The Fed provided powerful support to the American currency last Wednesday, but it is difficult to understand why the decline continues to this day. The market continues to buy dollars for no reason, while ignoring all factors in favor of the euro.

For June 25, we highlight the following trading levels — 1.1234, 1.1274, 1.1362, 1.1444, 1.1536-1.1542, 1.1585, 1.1657-1.1666, 1.1750-1.1760, 1.1786, 1.1830-1.1837, as well as the Senkou Span B line (1.1520) and Kijun-sen line (1.1407). The Ichimoku indicator lines may move during the day, which should be taken into account when determining trading signals. Don't forget to set a Stop Loss at breakeven if the price has moved in the correct direction by 15 pips. This will protect against potential losses if the signal proves false.

On Thursday, the EU economic calendar is empty, while the U.S. will release several interesting reports, including the third estimate of first-quarter GDP, durable goods orders, and the personal consumption expenditures price index.

Trading Recommendations:

Today, traders may consider short positions targeting 1.1274 if the price bounces from 1.1362. Long positions can be opened with a target of 1.1444 if the pair consolidates above 1.1362.

Explanations for Illustrations:

Support and resistance price levels are thick red lines around which movement may end. They are not sources of trading signals.

The Kijun-sen and Senkou Span B lines are Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. They are strong lines.

Extreme levels are thin red lines from which the price has previously bounced. They are sources of trading signals.

Yellow lines indicate trend lines, trend channels, and any other technical patterns.

Indicator 1 on the COT charts shows the size of the net position of each category of traders.