EUR/USD 5-Minute Analysis

The EUR/USD currency pair experienced a decline during the first half of Tuesday followed by a rise in the latter half. While the reasons for the initial drop are clear, the cause of the euro's subsequent rise remains uncertain. On Tuesday, two ZEW reports regarding economic expectations and sentiment were released for the Eurozone. One report was better than expected, while the other was worse. However, neither of these reports was significant enough to prompt a 100-pip movement. In the U.S., there were no reports released, yet the dollar experienced another sharp decline in the latter half of the day for the second consecutive day.

From this, we can draw a simple conclusion. First, a technical correction is ongoing. Second, the market continues to be influenced by Donald Trump's statements. Regarding the first point, we have previously noted that the daily timeframe indicates a need for a correction, which is likely to be significant on the daily chart. Hence, the euro's rise may not have a fundamental basis; it could simply be a technical correction. As for the second point, if the market perceives Trump's initiatives negatively, the dollar could continue to decline for some time, as these factors are often priced in early.

On Tuesday's 5-minute timeframe, two strong buy signals were formed. The price first bounced off the 1.0366 level, followed by a bounce from the 1.0340–1.0366 range. In the first case, the subsequent growth was weak, but the trade could still be closed at breakeven. In the second case, the price moved significantly in the correct direction, allowing the trade to be closed manually with a solid profit or carried over to Wednesday with a breakeven stop loss in place.

COT Report

The latest COT report, dated January 14, indicates that the net position of non-commercial traders has consistently leaned towards a bullish stance. However, bears have recently taken the lead. Two months ago, there was a significant increase in the number of open short positions held by professional traders, resulting in a net position that turned negative for the first time in a considerable period. This suggests that the euro is being sold more frequently than it is being purchased.

Currently, we do not observe any fundamental factors that could support a strengthening of the euro. Technical analysis consistently shows that the price has remained in a consolidation zone, essentially demonstrating a flat trend. On the weekly timeframe, it is evident that since December 2022, the pair has fluctuated between the levels of 1.0448 and 1.1274. However, breaking below the 1.0448 level has opened up new opportunities for further decline.

At present, the red and blue lines have crossed and reversed their positions concerning each other, signaling a bearish trend in the market. During the last reporting week, the number of long positions in the "Non-commercial" category decreased by 3,700 contracts, while short positions dropped by 7,400 contracts. Consequently, the net position increased slightly by 3,700 contracts.

EUR/USD 1-Hour Analysis

On the hourly timeframe, the currency pair has initiated a new upward trend, which is corrective in nature. However, we anticipate that the euro's decline will continue in the medium term. The Federal Reserve is expected to cut interest rates only one to two times in 2025, indicating a more hawkish stance than the market had previously expected. This factor, among others, will continue to support the U.S. dollar. The end of the technical correction can be confirmed by the price settling below the Ichimoku indicator lines and the trendline.

For January 22, the following trading levels are identified: 1.0124, 1.0195, 1.0269, 1.0340–1.0366, 1.0461, 1.0524, 1.0585, 1.0658–1.0669, 1.0757, 1.0797, and 1.0843, along with the Senkou Span B line (1.0308) and the Kijun-sen line (1.0347). The Ichimoku indicator lines may shift throughout the day, which should be taken into account when determining trading signals. Remember to set the Stop Loss order to breakeven once the price moves 15 pips in the desired direction. This strategy will help protect against potential losses if the signal turns out to be false.

On Wednesday, there are no major reports scheduled in either the Eurozone or the U.S. The only notable event is a speech by European Central Bank President Christine Lagarde. While this event could be significant, the market's attention remains primarily focused on Donald Trump and his proposed policies.

Illustration Explanations:

• Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
• Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
• Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
• Yellow Lines: Trendlines, trend channels, or any other technical patterns.
• Indicator 1 on COT Charts: Represents the net position size for each category of traders.