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EUR/USD. Analysis for the trading week of December 12-16. COT report. Is the long-awaited correction in the euro finally

Long-term outlook.


During the current week, the EUR/USD currency pair may exhibit highly volatile movements and sharp reversals in various directions. It didn't display any of this, though. There was only one reversal, and the volatility indicators were within the "norm." This week is arguably the most significant of 2022, but this is odd. Not because it was the most significant event of the year but because of the extreme concentration of significant events that took place there. You can think back to the European Central Bank meeting, the November final inflation report, business activity indices for manufacturing and services, and industrial production. In addition to the news from the EU, there was a sizable collection of statistics from abroad. As a result, traders had a reason to respond.

However, despite the pair's strong overbought condition, the long-awaited downward correction has not yet started. There was a decrease in quotes on Thursday and Friday, but the 24-hour TF still hardly shows it. Considering the pair has increased by 1200 points in just 2.5 months, a real correction would be at least 400–500 points. There is nothing comparable as of yet. Let's go back to the ECB meeting, which is the main event of the week in the European Union. In general, we can say that the main decision was to launch the QT program in the first quarter of next year, which entails selling the balance of the central bank, ignoring all the "water," which typically does not interest anyone. The ECB is at the end of this process because the Fed and the Bank of England have already begun similar programs. However, traders initially received this news favorably, and the European currency started to increase again. Only by the end of the week did either currency sales or profit-taking on long positions start, but at least the pair started to roll back down. There is no reason to anticipate a new downward trend because the price is above all of the Ichimoku indicator's lines.

COT evaluation.

The COT reports on the euro currency in 2022 continue to astound. They displayed the openly "bullish" attitude of professional traders for the first half of the year, but the value of the euro was steadily declining at the same time. Then they displayed a "bearish" attitude for a while, and the value of the euro also steadily declined. Although the euro is rising and non-commercial traders' net positions are again "bullish," the relatively high value of the "net position" now makes it possible for the upward movement to be about to reach its peak. The number of buy contracts from the "non-commercial" group fell by 8.6 thousand during the reporting week, while the number of shorts increased by 8.5 thousand. The net position consequently decreased by about 0.1 thousand contracts. Please note that the first indicator's green and red lines are very far apart from one another, which could signal the end of the ascending trend (which did not exist because the entire upward movement over the past 2.5 months itself fits the concept of "correction" against the global downward trend). For non-commercial traders, there are 125 thousand more buy than sell contracts. As a result, although the net position of the "non-commercial" group may continue to increase, the euro may not experience a similar increase. Sales are 33 thousand more if you look at the overall open longs and shorts indicators for all trading categories (711k vs. 678k).

Examination of fundamental occurrences

As was already mentioned, numerous significant events have taken place in the European Union this week. The ECB meeting has been resolved; the remaining data needs to be resolved. Despite traders' expectations for a 1.5–2.5% fall, industrial production fell by 2% in October. Instead of increasing by 10% exactly as the indicator's first estimate indicated, inflation rose by 10.1% in November. The manufacturing sector's business activity index increased to 47.8, while the service sector's index increased to 49.1. Both indicators, however, are still below the threshold of 50.0, so they cannot be considered positive simultaneously. This week's macroeconomic reports from the EU appear to be underwhelming. This predicament has existed for a considerable amount of time. In general, the euro is still rising unjustifiably, even though it has already reached its peak. Still, a significant downward correction is anticipated.

Weekly trading strategy for December 19–23:

1) The pair is above all of the Ichimoku indicator's lines in the 24-hour time frame, giving it a good chance of continuing to rise. Of course, if geopolitics begins to deteriorate once more, these chances could disappear quickly, but for now, we can confidently anticipate an upward movement with a target of 1.1040 (76.4% Fibonacci) and buy (cautiously) the pair. Meanwhile, a significant downward correction could start at any time.

2) The euro/dollar pair sales are no longer significant. It would help if you waited for the price to return below the important Ichimoku indicator lines before thinking about shorting. There are no circumstances in which the US dollar can reverse the current trend. However, in the modern world, anything can happen at any time.

Explanations for the examples:

Fibonacci levels serve as targets for the beginning of purchases or sales, and price levels of support and resistance (resistance/support). Take Profit levels may be close by.

Bollinger Bands, MACD, and Ichimoku indicators (standard settings) (5, 34, 5).

The net position size of each trading category is represented by indicator 1 on the COT charts.

The net position size for the "Non-commercial" group is represented by indicator 2 on the COT charts.

Trading analysis offered by Flex EA.