EUR/USD 5-Minute Analysis

On Wednesday, the EUR/USD pair saw another significant decline. Although not as pronounced as the drop in GBP/USD, the euro has been falling for the second consecutive day after three days of growth. Early in the day, traders were presented with data indicating selling opportunities. German retail sales were much weaker than expected, further confirming the slowdown in the German and broader European economies. Given these conditions, how can the euro rise, especially when the U.S. economy consistently grows at a rate of 3% per quarter?

During the U.S. trading session, a weak ADP report on private-sector job creation was released. This report only temporarily halted the decline of the euro and the rise of the dollar. Following its release, the euro failed to recover. As a result, the price is now firmly below the Senkou Span B and Kijun-sen lines, presenting two possible scenarios: either we are at the beginning of a flat phase, which will become clearer on the 4-hour timeframe, or the downward trend has resumed. In any case, as long as the price remains below the Ichimoku indicator lines, only sell positions should be considered. If the price manages to consolidate above these lines by the end of the week, a horizontal channel may be in play.

On the 5-minute timeframe, there was only one trading signal on Wednesday. During the European session, the price broke below the 1.0340 level as well as the Kijun-sen line, allowing for short positions to be opened. Unfortunately, the price missed the target level of 1.0269 by just a few pips. However, the short trade could still have been manually closed for a decent profit at any time.

COT Report

According to the latest Commitment of Traders (COT) report, dated December 24, there has been a change in the positioning of non-commercial traders. While their net position had remained bullish for an extended period, bears have recently taken the lead. Two months ago, the number of short positions among professional traders surged, resulting in a net position that has become negative for the first time in a long time. This indicates that the euro is now being sold more frequently than it is being bought.

We still do not see any fundamental factors supporting the strength of the euro. For an extended period, technical analysis has indicated a consolidation zone, leading to a sideways market. On the weekly time frame, it is clear that since December 2022, the currency pair has been trading between 1.0448 and 1.1274. However, the recent break below the 1.0448 level has created new opportunities for further declines.

Currently, the red and blue lines in the COT chart have crossed each other and switched positions, signaling a bearish market trend. During the latest reporting week, the number of long positions in the "non-commercial" group increased by 6,800, while short positions grew by 9,400, leading to a further decline in the net position of 2,600.

EUR/USD 1-Hour Analysis

On the hourly chart, the currency pair is once again trying to continue its three-month-long downward trend. We believe this decline will persist in the medium term. The Federal Reserve is expected to cut rates only 1-2 times in 2025, adopting a more hawkish stance than the market initially anticipated. We hold that there are no strong reasons for a significant rally in the euro. The bearish bias will remain as long as the price stays below the Ichimoku indicator lines.

For January 9, the following levels are key for trading: 1.0195, 1.0269, 1.0340-1.0366, 1.0485, 1.0585, 1.0658-1.0669, 1.0757, 1.0797, 1.0843, and 1.0889, along with the Senkou Span B (1.0342) and Kijun-sen (1.0330) lines. Note that the Ichimoku indicator lines may shift during the day, which should be considered when determining trading signals. Don't forget to set a Stop Loss order at breakeven if the price moves 15 pips in your favor to safeguard against potential losses if the signal turns out to be false.

In the eurozone, a retail sales report will be released, and Germany will publish its industrial production figures. It is almost certain that at least one of these reports will underperform. Conversely, there are no scheduled events on the U.S. economic calendar for today. For the euro to keep declining, it must remain below the Ichimoku indicator lines. However, on Friday, macroeconomic factors will likely play a more significant role than the technical indicators in determining the movement of the pair.

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.