EUR/USD 5-Minute Analysis

On Friday, the EUR/USD currency pair experienced a downward pullback after a significant rise on Thursday. Notably, there were no major economic reports or events in the Eurozone or the U.S. on Thursday, yet both the euro and the pound exhibited solid gains. However, on Friday, which had the most extensive macroeconomic data releases, volatility decreased, leading to declines in both the euro and the pound.

It's important to clarify that the euro's decline did not appear illogical; rather, Thursday's rally seemed unjustified. On Friday, business activity indices from Germany, the Eurozone, and the U.S. produced conflicting results. While manufacturing sector indices slightly improved and surpassed expectations, service sector indices came in weaker than anticipated. Additionally, the University of Michigan's consumer sentiment index in the U.S. was also worse than expected. Consequently, although the pair could have moved in either direction, the downward scenario unfolded, resulting in a decline. Nevertheless, due to the low volatility, the U.S. dollar did not strengthen significantly.

We want to highlight to traders that the pair is currently near the upper boundary of a sideways channel on the daily timeframe, which increases the likelihood of a downward reversal based solely on technical factors. Furthermore, over the past two weeks, there have been no new reasons for the euro to continue rising.

On Friday, a single trading signal was generated, similar to the previous days of the week. During the U.S. session, the price rebounded from the 1.0461 level but only managed to rise by 20 pips, which was insufficient to do more than set a Stop Loss at breakeven. Weak volatility resulted in limited market movement.

COT Report

The latest COT report, dated February 18, indicates that the net position of non-commercial traders remained bullish for an extended period. However, bears have recently gained dominance in the market. Three months ago, there was a significant increase in the number of short positions taken by professional traders, resulting in a negative net position for the first time in a long while. This trend suggests that the euro is being sold more frequently than it is being purchased, leading to a prevailing bearish sentiment.

Currently, there are no fundamental factors supporting a strengthening of the euro. The upward movement observed in the weekly timeframe is minimal and appears to be a mere correction. The currency pair may continue to correct for several weeks or even months; however, this does not alter the long-term downtrend that has persisted for 16 years.

At present, the red and blue lines in the COT report have crossed and switched positions, indicating a bearish trend in the market. During the most recent reporting week, the number of long positions in the "Non-commercial" group increased by 4,700, while short positions decreased by 8,200. As a result, the net position grew by 12,900 contracts; nonetheless, this change does not significantly impact the overall market sentiment.

EUR/USD 1-Hour Analysis

On the hourly timeframe, the pair continues its local uptrend. We believe a decline will resume in the medium term, as the Federal Reserve may only cut interest rates once or twice in 2025, while the European Central Bank is expected to cut rates more aggressively. However, in the short term, we may see one or two more uptrends, as the correction on the daily timeframe could take a long time and become quite complex. The euro still lacks strong reasons to rise, and its occasional gains remain 80% technical.

For February 24, we highlight the following levels for trading: 1.0124, 1.0195, 1.0269, 1.0340-1.0366, 1.0461, 1.0524, 1.0585, 1.0658-1.0669, 1.0757, 1.0797, 1.0843, as well as the Senkou Span B line (1.0400) and the Kijun-sen line (1.0454). The Ichimoku indicator lines may shift during the day, which should be considered when identifying trading signals. Traders should not forget to set a Stop Loss at breakeven if the price moves 15 pips in the right direction, as this will protect against potential losses in case of a false signal.

On Monday, the Eurozone is set to release the second estimate of inflation and Germany's business climate index. We consider both reports secondary, although the consumer price index could still deliver a surprise if the second estimate differs from the first.

Illustration Explanations:

• Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
• Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
• Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
• Yellow Lines: Trendlines, trend channels, or any other technical patterns.
• Indicator 1 on COT Charts: Represents the net position size for each category of traders.