The EUR/USD currency pair continued to trade in an ultra-calm mode during the current week. We have already said earlier that the movements that look quite volatile on the charts are not such. For example, the last Friday candle, which is quite impressive in size, actually has a size of about 70 points. Most of the days end with a volatility of 30-40 points, which is very small. Therefore, there are very weak movements for the euro/dollar pair, which are very difficult to work out.
Nevertheless, we note that the pair still worked out to the level of 1.1700, which we called the target. The illustration clearly shows two serious price declines, which are two corrections against the global upward trend. As you can see, the second round of correction ended in the same place as the first. It is exactly the scenario we were counting on. Now, in some way, the "moment of truth" is coming for the pair, since if the US currency, contrary to our expectations, is going to continue to be in demand, then it needs to break through the 17th level. In recent weeks, the dollar has received support from the fundamental background, as more members of the Fed's monetary committee show their readiness to vote for curtailing the quantitative stimulus program in the coming months. And here, the US dollar must also prove that it reacted to this news from the Fed and not just grew based on technical factors. Because if the markets pay close attention to possible changes in monetary policy towards tightening, then the US currency has a good chance of continuing growth. Otherwise, the long-awaited upward trend should begin with a minimum target near the level of 1.2240.
During the last reporting week (August 3-9), the EUR/USD pair fell by 140 points. Since, in general, the European currency has been falling in recent weeks, it is not surprising that COT reports show a weakening of the "bullish" mood among professional traders. However, the euro/dollar pair has been declining very reluctantly in recent weeks, and major players have stopped massively closing buy contracts and opening sell contracts. During the reporting week, a group of Non-commercial traders opened 11 thousand buy contracts and 18 thousand sell contracts. Thus, the net position for professional players decreased by another 8 thousand. However, the indicators under the chart show that although the net position continues to decline, its reduction rate is decreasing. In addition, as we have already said, the European currency has fallen to the level of 1.1700, near which there is a very high probability of an upward reversal. The first indicator shows that the green and red lines (net positions of the "Non-commercial" and "Commercial" groups) continue to move towards each other, which means that the upward trend continues to weaken. Recall that when the lines begin to narrow, it means the end of the current trend. However, at the same time, the situation on the chart looks just like a correction. Thus, we believe that at this time, both indicators signal a correction. Still, we should not forget that the Fed has not yet completed the quantitative stimulus program, thanks to which the American economy continues to be pumped with money, which provokes an increase in inflation and an increase in the supply of the dollar in the foreign exchange market. Therefore, we still expect a new round of the fall of the US currency. The mood of the major players remains "bullish," as the total number of buy contracts still exceeds the number of sell contracts.
The current trading week was very calm in terms of macroeconomic statistics and fundamental events. The US inflation report showed that the indicator's value did not change compared to the previous month, and all reports from the European Union did not cause any reaction from traders. However, there are still several reasons for weakening the US currency at the end of the week. First, quite unexpectedly, on Friday, the consumer sentiment index from the University of Michigan collapsed from 81.2 points to 70.2. And the markets did not ignore this report any less unexpectedly. Secondly, a new wave of "coronavirus" diseases is gaining momentum in the United States.
Meanwhile, doctors have found another new strain of the virus, which is even more contagious and deadly than all the already known strains. Third, the bears were saved before the level of 1.1700. Thus, in the coming weeks, everything will depend on how seriously the markets take the fact that the QE program can be completed in the near future and whether the US economy will start to slow down due to a new "wave" of the pandemic.
Trading plan for the week of August 16-20:
1) In the 24-hour timeframe, the trend remains downward. However, traders have made an unsuccessful attempt to overcome the level of 1.1700. Thus, the downward movement can be completed. However, as long as the price is below the critical line, the downward trend remains relevant, and short positions should be preferred in trading.
2) The euro/dollar pair with grief in half crawled to the level of 1.1700, but it corrected to the Kijun-sen line on Friday. Therefore, overcoming this line may indicate the beginning of a new upward trend. The first target for long positions, in this case, will be the level of 1.2000, but in the future (perhaps for several months), the pair may reach the previous local maximum of 1.2240.
