EUR/USD 5-Minute Analysis

The EUR/USD currency pair continued to trade on Tuesday within a range-bound channel and a state of total flat movement. Volatility is decreasing daily, and the price action is becoming increasingly sideways, so to speak. Essentially, the pair compresses within the range-bound channel (!), resembling a coiled spring ready to release. However, we warned weeks ago that the correction could be prolonged and drawn out. Despite this week's macroeconomic backdrop potentially pushing the pair out of its flat movement, nearly every report published contradicted another. Negative ones immediately offset positive reports in the US, and the same pattern occurred in the Eurozone. As a result, the euro continues to trade logically and predictably.

What's intriguing is that even the Federal Reserve meeting may not change the status quo. A 0.25% rate cut is already priced in. If Jerome Powell does not announce anything new or significant, the market will have little to react to this evening. While a spike in volatility and emotional responses is expected, there is a high likelihood of seeing sharp movements in both directions, only to return to the starting point. Only genuinely new and critical information could trigger a trend resumption or a correction continuation.

Two trading signals were generated on Tuesday. The price bounced off the Kijun-sen line overnight, and then the 1.0485 level was tested. During the European trading session, the price rebounded from the 1.0485 level and climbed nearly to the Kijun-sen line. Therefore, both signals can be considered profitable, though the low volatility limited potential earnings.

COT Report

The latest COT report, dated December 10, provides a clear picture of market sentiment. As shown in the illustration above, the net position of non-commercial traders has long remained bullish, but bears have recently gained dominance. Two months ago, the number of open short positions among professional traders increased sharply, turning the net position negative for the first time in a long while. This indicates that the euro is now being sold more often than bought.

We still see no fundamental factors supporting the euro's strengthening, and technical analysis indicates the price is in a consolidation zone—essentially, a flat market. On the weekly timeframe, it's clear that since December 2022(!!!), the pair has been trading between 1.0448 and 1.1274. Therefore, a further decline remains more likely. Breaking below the 1.0448 level will open new territory for a euro sell-off.

The red and blue lines have crossed and switched positions relative to one another, signaling a bearish trend in the market. During the last reporting week, the number of longs in the non-commercial group decreased by 10,300, while shorts increased by 7,700. As a result, the net position fell by another 18,000.

EUR/USD 1-Hour Analysis

On the hourly timeframe, the pair continues to correct within a clearly visible range-bound channel. The correction remains complex and slow, as we anticipated. We still believe there are no fundamental reasons for a significant rally in the euro, so we will wait for the correction to end and for the pair to resume its decline toward parity. For instance, a break below the 1.0460 level would signal a potential resumption of the downtrend.

For December 18, the following levels are identified for trading: 1.0269, 1.0340–1.0366, 1.0485, 1.0585, 1.0658–1.0669, 1.0757, 1.0797, 1.0843, 1.0889, 1.0935, as well as the Senkou Span B line (1.0545) and the Kijun-sen line (1.0524). The Ichimoku indicator lines may shift during the day, which should be considered when identifying trading signals. Remember to set a Stop Loss order to break even if the price moves 15 pips in the right direction. This will help mitigate potential losses if the signal turns out to be false.

On Wednesday, the Eurozone will release the second estimate of inflation, which is unlikely to significantly impact the pair's movement. In the US, several secondary reports will be published, but the key event of the day is scheduled for the evening—the Fed meeting, its results, and Powell's press conference.

Illustration Explanations:

Support and Resistance Levels (thick red lines): Key areas where price movement might stall. Not sources of trading signals.

Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the H4 timeframe to the hourly chart, serving as strong levels.

Extreme Levels (thin red lines): Points where the price has previously rebounded. They can serve as trading signal sources.

Yellow Lines: Trendlines, channels, or other technical patterns.

Indicator 1 on COT Charts: Reflects the net position size of each trader category.