The EUR / USD currency pair continued its upward movement throughout the past week. Although it is better, of course, to clearly indicate that growth was observed only on Monday and Friday, and for the three remaining days the pair was in a flat. However, the growth for two days was enough for a total of the euro / dollar pair to rise by 123 points, which is not so little, given the fact that there were practically no macroeconomic statistics and important events this week. Below we will consider in more detail the fundamental component. Here we would like to note that everything is going according to the plan, which we have been talking about over the past months. In short, the pair was inside an uptrend for most of 2020, corrected for three months at the beginning of 2021 and is now showing readiness to resume the uptrend. Thus, we expect further growth in the quotations of the European currency, although there is no fundamental reason for this. However, we have already repeatedly talked about the “global fundamental factor” – the inflation of the US money supply – which leads to the fall of the dollar in the last year. The US authorities and the Fed continue to stimulate their economy with trillions of dollars, thus, dollars simply and corny becomes more in the world and, accordingly, in the markets. Naturally, according to market laws, in this case, the exchange rate falls. According to economic laws, inflation is growing, which we, in fact, are now seeing in the States. Thus, now the bulls have to overcome the Ichimoku cloud, and then not to lose the initiative from their hands. Of course, downward correction is possible in the coming weeks, since the pair has already grown by 400 points in total without a single pullback, but it should not affect the trend.
During the last reporting week (April 13-19), the EUR / USD pair increased by 120 points. We would like to remind that since February major players have been intensively cutting their buy contracts and opened sell contracts. In the “Non-commercial” group since the beginning of February, the total number of Buy-positions has decreased from 240 thousand to 190, and the number of Sell-positions has grown from 76 thousand to 127. Thus, the weakening of the “bullish” mood is evident, however, it is still remains bullish, but in the last two weeks it has begun to strengthen again. Recall that the COT reports signal the end of the uptrend since last September, when the lines of the first indicator moved as far apart as possible. However, we still remind traders that the factor of pumping money into the American economy has not been canceled. Simply put, large players can trade as they please, in any direction, buy any currency, but if at the same time the money supply of dollars increases by trillions, but the influence of the players themselves on the foreign exchange market becomes less. Accordingly, now in the first place is simply the factor of increasing money supply in the United States, and not the behavior of non-commercial and commercial traders in the foreign exchange market. During the last reporting week, professional traders opened 6.2 thousand buy contracts and closed 8.5 sell contracts. Thus, their net position increased by 14.7 thousand contracts. Thus, it is possible that the major players realized that the European currency would still rise in price, while the dollar would fall, and decided to trade with the trend themselves. If earlier it was the big players who formed the trend, now they themselves follow the trend. In general, from our point of view, the likelihood of further growth of the European currency in 2021 is very high.
Macroeconomic background was rather weak this week. The first three trading days of the week were generally half-days off, there weren’t even minor reports. It was only on Thursday that the European Union summed up the results of the ECB meeting, at which, in fact, there was nothing interesting. The European currency came under pressure that day, as Christine Lagarde’s rhetoric was overly dovish and pessimistic. However, in total on this day, the euro currency lost 17 points, and, for example, on Monday, when there was no news at all, it gained 66. Thus, in general, the ECB meeting was really “through”. If not for Christine Lagarde, there would have been no reaction at all. On Friday, the main event of the day was the index of business activity in the services sector of the European Union, which for the first time in a long time rose above the “red line” and amounted to 50.3 points. However, it can hardly be concluded that the euro rose after that by 70 points precisely because of the report on business activity. Although, it is quite possible that the markets really reacted to this report with purchases, but only in the context of maintaining the overall upward trend.
Trading plan for the week of April 26 – 30:
1) On the 24-hour timeframe, the trend continues to reverse. The price approached the Senkou Span B line (1.2091) and now it must either be overcome or bounced. In the first case, the next targets for the upward movement will be the 22nd level and 1.2347, in the second case, a rollback of 100-200 points will follow. In general, we continue to expect further growth of the European currency.
2) The downtrend has temporarily reversed. We still believe that the US dollar lacks support from global fundamentals, so it will not continue to grow in 2021. However, we remind you that any fundamental theory must be supported by technical factors. Therefore, it is not recommended to trade down for now, as the pair went above the critical line. Certain hopes for resumption of downward movement may appear only below the Kijun-sen line (1.1891).
Explanations for illustrations:
Price levels of support and resistance (resistance / support) – levels that are targets when opening purchases or sales. You can place Take Profit levels near them.
Indicators Ichimoku, Bollinger Bands, MACD.
Support and resistance areas are areas from which the price has repeatedly bounced off.
Indicator 1 on the COT charts is the size of the net position of each category of traders.
Indicator 2 on the COT charts is the size of the net position for the “Non-commercial” group.