Analysis of EUR/USD 5M

EUR/USD showed positive trades on Monday, and opened with a bullish gap. This was the market's reaction to the results of the first round of parliamentary elections in France, which was won by the far-right party led by Marine Le Pen. With all due respect to political events, we believe that they should not drive the market. In the second half of the day, the price returned near its opening level, as if making up for the pair's movement in the morning.

There was also plenty of macro data yesterday. We will not dwell on the business activity indices in the manufacturing sectors of Germany, the EU, and the US, as these are second estimates for June. However, the Consumer Price Index in Germany fell more than expected – to 2.2%, and this is significant. This increases the likelihood of seeing a second cut in the European Central Bank's key rate as early as September. During the US session, the ISM manufacturing business activity index was published, which is the first important US report for this week. It turned out to be weaker than expected. Business activity dropped to 48.5 points, while experts had forecasted an increase to 49.1 points. Nevertheless, the dollar continued to rise in the second half of the day, recouping the morning decline.

Trading signals on Monday left much to be desired. The price formed two buy signals around the Senkou Span B line and two sell signals. The buy signals mimicked each other, as did the sell signals. Therefore, traders could open one long position and one short position. The long position did not bring profit – it closed with a small loss. Traders could gain about 20 pips on the short position. Volatility was low, despite the abundance of macroeconomic and political events.

COT report:

The latest COT report is dated June 25. The net position of non-commercial traders has remained bullish for quite some time and remains so. The bears' attempt to gain dominance failed miserably. The net position of non-commercial traders (red line) has been declining in recent months, while that of commercial traders (blue line) has been growing. Currently, they are equal, which shows that the bears are trying to seize the initiative.

We don't see any fundamental factors that can support the euro's strength in the long term, while technical analysis also suggests a continuation of the downtrend. Three descending trend lines on the weekly chart suggests that there's a good chance of further decline. In any case, the downward trend is not broken.

Currently, the red and blue lines are approaching each other, which indicates a build-up in short positions on the euro. During the last reporting week, the number of long positions for the non-commercial group decreased by 4,100, while the number of short positions increased by 12,300. As a result, the net position decreased by 16,400. According to the COT reports, the euro still has a good potential to fall.

Analysis of EUR/USD 1H

On the 1-hour chart, EUR/USD continues to form a new downtrend, which is part of the global trend. We still expect the single currency to fall, but the pair is currently going through a correction, and it may last for another week. Volatility remains low, making it quite difficult to conduct analysis and trading. Sell signals are required for a new wave of the downtrend, and there are currently none of those – the price is showing flat dynamics for two weeks.

On July 2, we highlight the following levels for trading: 1.0530, 1.0581, 1.0658-1.0669, 1.0757, 1.0797, 1.0836, 1.0889, 1.0935, 1.1006, 1.1092, as well as the Senkou Span B lines (1.0742) and Kijun-sen (1.0722). The Ichimoku indicator lines can move during the day, so this should be taken into account when identifying trading signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 15 pips. This will protect you against potential losses if the signal turns out to be false.

Today, the Eurozone inflation report for June will be published, but the market may show a weak reaction. European Central Bank President Christine Lagarde will also speak, but yesterday, she did not provide the market with any significant information. We can expect more from Federal Reserve Chair Jerome Powell's speech. In addition, the JOLTs report on the number of job openings in the US for May will warrant investor attention.

Description of the chart:

Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;

The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;

Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals;

Yellow lines are trend lines, trend channels, and any other technical patterns;

Indicator 1 on the COT charts is the net position size for each category of traders;