Thursday, November 5, 2020

EUR/USD on November 5. COT report. No election results yet, markets on alert

 The EUR/USD pair was trading quite volatile once again on the hourly timeframe of November 4, which is not at all surprising given the fundamental background. For the last two days, the pair dropped to the support area of 1.1612-1.1624, rebounded off it and started a new round of upward movement, going beyond the resistance area of 1.1692-1.1699. Thus, formally, there is even an upward trend now, and the prospects for the pair boil down to another development of the Senkou Span B line. We will not make a long term forecast right now, since the markets are in an excited state and no one knows how long it will continue. If the price settles below the Kijun-sen line, a fall to the support area of 1.1612-1.1624 is possible.


The linear regression channels turned to the upside on the 15-minute timeframe, which reflects the nature of the movement on the hourly chart in the last few hours. Multi-directional movements may continue in the coming days.


The EUR/USD pair rose quite a bit during the last reporting week (October 20-26). Therefore, we can conclude that professional market participants did not make any extremely large purchases and sales of the European currency. However, the new Commitment of Traders (COT) report showed that non-commercial traders were actively closing Buy-contracts (longs) during the reporting week. In total, 12,000 of them were closed. But professional traders were in no hurry to get rid of Sell-contracts (shorts), having closed only 1,000. Thus, the net position of this group of traders decreased by 11,000 contracts at once. It is possible that the main closing of the Buy-contracts took place at the end of the reporting week, because in the following days a more tangible drop in euro's quotes began. Within its framework, the euro/dollar pair lost about 160 points. We remind you that if the net position decreases, it means that the traders' sentiment becomes more bearish. Thus, so far, our forecast is coming true. In the analysis of previous COT reports, we said that the high around the 1.2000 level could remain as the peak for the entire upward trend. The first indicator and its green line clearly show that non-commercial traders have been cutting back on long deals on the euro for two months now. And non-commercial traders are the most important group of large traders in the foreign exchange market. It is believed that it is the one responsible for driving the market.


Several more or less important macroeconomic reports were published in the European Union and the United States on Wednesday. The index of business activity in the service sector was released in the EU, which exceeded the forecast value and reached 46.9, but still remained below the key level of 50.0, which indicates a decline in the region. The ISM index of business activity in the US services sector was 56.6, which is below the forecast and the previous value, but above the key level of 50.0. The most important ADP report on changes in the level of employment in the private sector was much weaker than forecasts and reached only 365,000 (forecast +650,000). Therefore, we can say that the dollar's fall was in some way justified by macroeconomic statistics. But just after lunch, the euro/dollar pair mostly stood in one place. Thus, rather, traders completely ignored all reports. Well, they did not ignore the results of the (preliminary) presidential elections in the United States. Latest figures say Joe Biden is in the lead, but not all votes have been counted yet. The publication of the report on retail sales in the European Union will take place tomorrow. Traders will likely ignore this report and continue to wait for more information about the elections.


We have two trading ideas for November 5:


1) The EUR/USD pair managed to settle above the Kijun-sen line and in the area of 1.1692-1.1697 yesterday. Thus, buyers are now advised to trade upward with the target of the Senkou Span B line (1.1765), and in case we go beyond it, you should aim for 1.1791. Take Profit in this case can be up to 70 points. Take note that sharp price reversals are possible and market participants can change their mood.


2) Bears let go of the initiative, since they missed the area above the critical line. Thus, sellers are advised to go back to trading bearish with targets at 1.1612-1.1624 and the support level at 1.1571, if the price settles below the Kijun-sen line (1.1685). Take Profit in this case can range from 50 to 110 points. You should also be careful with short positions.