The EUR/USD pair continued to move upward on the hourly timeframe yesterday and worked out a new downward trend line based on the highs of March 27 and May 1. The closing quotes were not accurate, however, the pair could not continue to move up. Thus, now there is a rather high probability that a downward reversal will be made and a new round of downward movement to a long-term upward trend line will begin. We also recall that, in general, the euro/dollar continues to trade inside the 1.0750-1.0990 channel, so we can also assume that the downward movement has been completed near the top line of this side channel. Bulls do not yet have the necessary strength and desire to continue forming a new upward trend.
We see a confident upward trend that has formed on the 15-minute timeframe in recent days. However, the lowest linear regression channel unfolds slowly downward, which means that the upward momentum could already be exhausted. Turning the minor channel down will indicate that an upward trend in the short term has been completed and is some way a confirmation of the rebound from the trend line on the hourly chart.
The latest COT report dated May 12 showed a new decrease in the number of buy and sell transactions among large traders, by 4,781 and by 3,554. Thus, the general mood of large traders remains bullish (the total number of purchase transactions is higher, 549,000-521,000), in addition to this, traders still managed to stay above the trend line on the 4-hour timeframe. Also, purchase positions among entities engaged in professional activities in the foreign exchange market have increased (+4569 purchase transactions). Thus, the euro can continue the growth process for some time.
As for the fundamental background, it is almost neutral now for the EUR/USD pair. There is still a lot of news coming from both the European Union and the US, however, both countries are in more or less the same position, neither the dollar nor the euro has advantages. Yesterday, for example, US Treasury Secretary Stephen Mnuchin and Federal Reserve Chairman Jerome Powell spoke, but they did not tell the markets anything new and interesting. The macroeconomic background continues to be largely ignored by traders, as both economies are simultaneously declining due to the coronavirus epidemic. Today we recommend that you pay attention to the EU inflation report (low probability of its development), as well as the publication of the minutes of the last meeting of the US Federal Reserve Open Market Committee (also a low probability of market reaction to this event).
Based on the foregoing, we have two trading ideas for May 20:
1) It is possible for the pair’s quotes to continue growing if the downward trend on the hourly chart and the resistance level of 1.0952 are overcome. This will mean that the pair can test the levels of 1,0990 and 1,1008, which can also be considered with some stretch in the area of the upper line of the side channel. We do not yet expect the pair to grow above the psychological level of $1.10. The potential to take profit is about 35 and 50 points.
2) The second option – bearish – is more likely. According to the option, it is already possible to sell the euro, since the quotes have already rebounded off the downward trend line and the resistance level. Of course, do not forget about the Stop Loss in case the bulls still continue to exert pressure on the US currency. However, a decline to the Senkou Span B line – 1.0893 is now very likely. And overcoming this line, the Kijun-sen line and the support area of 1.0880-1.0893 will allow you to open new lower positions with the target of 1.0810 (upward trend line). The potential to take profit while exerting this scenario will be 30 and 70 points.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.