Analysis of EUR/USD 5M

The EUR/USD currency pair rose a bit on Friday, but nothing fundamentally changed for it. The euro remains below the Senkou Span B line, and there is still no trendline in place. Thus, the downward trend continues, despite a two-week flat and an increase in quotes on Friday. On this day, two reports, more or less important, were published in Germany, showing quite notable values. The unemployment rate decreased from 6.4% to 6.3%, while inflation fell from 2.9% to 2.6%. In both cases, traders did not expect such results. However, the market reacted weakly to these figures. Traders once again ignored macroeconomic data, which no longer surprises anyone.

From a technical standpoint, the pair remains in a downward trend. If the Senkou Span B line is breached next week, then one might start talking about an upward trend. However, we must remember that geopolitics still rules the currency market. For the euro to grow, new, optimistic, and encouraging news regarding the conflict in the Middle East and the Strait of Hormuz blockade is required. However, we have not received such news over the past week. Of course, the market can continue to believe in a ceasefire, a deal, and the unblock of the strait, but it is impossible to predict what the market will believe next week.

On the 5-minute timeframe, four trading signals were generated on Friday. During the European trading session, the pair bounced off the 1.1657-1.1666 area, then off the 1.1615-1.1625 area. During the American session, it overcame the 1.1657-1.1666 area and bounced off the Senkou Span B line. Traders could not act on the last two signals since the distance between the entry point and the target was minimal. The first two signals brought a decent profit.

COT Report

The latest COT report is dated May 26. The illustration of the weekly timeframe clearly shows that the net position of non-commercial traders remains "bullish," but is rapidly declining due to geopolitical events. Traders have been getting rid of the euro in favor of the US dollar in recent months. Donald Trump's policy has not changed, but the dollar has served as a "reserve currency" for some time. However, this process may already be over.

We still do not see any fundamental factors that would strengthen the euro, but there are enough factors for the dollar to decline. The war in the Middle East made the dollar super attractive for a time, but once this factor reaches its "expiration date," everything will revert to the way it was. And it may have already expired. In the long term, the euro could fall to the level of $1.06 (trend line), but the upward trend will still remain relevant. At the moment, the pair has not strayed too far from the downward trend line, which has been breached several times.

The positioning of the red and blue lines of the indicator indicates parity between bulls and bears. During the last reporting week, the number of longs in the "Non-commercial" group decreased by 10,200, while the number of shorts decreased by 6,100. Accordingly, the net position fell by 4,100 contracts over the week.

Analysis of EUR/USD 1H

On the hourly timeframe, the EUR/USD pair continues to form a downward trend and remains generally flat. The situation in the Middle East remains tense; it is not getting worse, and Washington and Tehran may only dream of signing a preliminary agreement for now. If there are no new signs of escalation in the Middle East and the memorandum is indeed signed, the dollar will begin to lose ground. But for now, we do not observe either the first or the second.

For June 1, the following levels are highlighted for trading: 1.1362, 1.1426, 1.1542, 1.1615-1.1625, 1.1657-1.1666, 1.1750-1.1760, 1.1786, 1.1830-1.1837, 1.1907-1.1922, as well as the Senkou Span B line (1.1683) and Kijun-sen line (1.1636). The lines of the Ichimoku indicator may shift during the day, which should be taken into account when determining trading signals. Do not forget to set a Stop Loss order to break even if the price moves in the correct direction by 15 pips. This will protect against potential losses if the signal turns out to be false.

On Monday, final estimates of business activity indices for the manufacturing sectors in Germany and the European Union, as well as retail sales in Germany, will be published. We consider all these reports to be secondary. A more or less important report is the ISM index in the US.

Trading Recommendations:

Today, traders can open short positions with targets at 1.1615-1.1625 and 1.1585 if the price consolidates below the 1.1657-1.1666 area. Long positions can be opened if the Senkou Span B line is breached, targeting the 1.1750-1.1760 area.

Explanations for the Illustrations:

Price levels of support and resistance – thick red lines, around which movement may end. They are not sources of trading signals.

Kijun-sen and Senkou Span B lines – lines of the Ichimoku indicator, transferred to the hourly timeframe from the 4-hour timeframe. They are strong lines.

Extreme levels – thin red lines, from which the price previously bounced. They are sources of trading signals.

Yellow lines – trend lines, trending channels, and any other technical patterns.

Indicator 1 on COT charts – the size of the net position of each category of traders.