EUR/USD 5-Minute Analysis

The EUR/USD currency pair showed strong downward movement on Monday, which hasn't happened in quite a while. However, the reasons behind the sharp and sudden surge in the U.S. dollar are rather evident. China and the U.S. unexpectedly agreed during their first consultation to reduce mutual tariffs by 115%. In other words, only 30% tariffs from the U.S. and 10% from China remain. Apparently, these numbers satisfied both sides, and the market breathed a sigh of relief.

Let us recall that the previous tariff regime of 145%-125% effectively halted trade between the two nations. Sooner or later, it is evident that the parties would come to an agreement, as a trade war benefits no one. China never denied its readiness for negotiations, and the U.S. waited for Beijing to make the first move. Eventually, a meeting took place in Switzerland and became highly productive. The dollar responded with a sharp rally, precisely what we had anticipated last week. If the dollar collapses on trade war escalation news, it should strengthen just as powerfully on de-escalation news—precisely what happened.

In the 5-minute timeframe, the rebound from the 1.1234 level marked the start of the collapse. Naturally, the crash was triggered by progress in the U.S.-China negotiations, not by a technical signal. However, both events coincided perfectly. Traders could have opened short positions, and the decline continued to 1.1092. From that level, the price rebounded upward to 1.1147, bounced off, and returned to 1.1092. Thus, traders had at least two more opportunities to open profitable trades.

COT Report

The latest COT (Commitment of Traders) report is dated May 6. As shown in the chart above, the net position of non-commercial traders remained bullish for a long time. Bears briefly took the lead but quickly lost it. Since Trump took office, the dollar has been in free fall. We can't say with certainty that the dollar's decline will continue, and the COT reports reflect the actual sentiment of large players, which can change rapidly under current circumstances.

We still see no fundamental factors for the euro to strengthen, but one major factor remains for the dollar to fall. The pair may continue to correct for several more weeks or months, but a 16-year downtrend will not reverse quickly. Once Trump concludes his trade wars, the dollar may return to growth.

The red and blue lines have crossed again, indicating a return to a bullish trend. Over the last reporting week, the number of longs among the "non-commercial" group decreased by 2,200, and the number of shorts decreased by 2,100. Accordingly, the net position remained virtually unchanged for the week.

EUR/USD 1-Hour Analysis

In the hourly timeframe, the EUR/USD pair has begun a relatively strong decline, but its prospects still depend on how the global trade war unfolds. If new trade agreements are signed and tariffs are reduced, the U.S. dollar will likely continue rising toward the levels it had before its decline began. Technical factors now have minimal impact—it's all about trade war headlines.

For May 13, the following levels are highlighted for trading: 1.0823, 1.0886, 1.0949, 1.1006, 1.1092, 1.1147, 1.1185, 1.1234, 1.1274, 1.1321, 1.1426, 1.1534, as well as the Senkou Span B line (1.1346) and the Kijun-sen line (1.1227). The Ichimoku indicator lines may shift throughout the day, so this should be considered when identifying signals. Don't forget to set Stop Loss to breakeven if the price moves in the right direction by 15 pips—this will help prevent losses from false signals.

The U.S. is scheduled to publish its inflation report, but let us remind you that the market is not responding much to macroeconomic data. Trade war headlines are far more influential. Although traders might react to the inflation print, this report is unlikely to have any major impact right now. We've already seen the market easily ignore the "hawkish" Fed meeting.

Illustration Explanations:

• Support and resistance price levels – thick red lines where movement may end. They are not trading signal sources.
• Kijun-sen and Senkou Span B lines—These are strong Ichimoku indicator lines transferred to the hourly timeframe from the 4-hour one.
• Extremum levels – thin red lines where the price has previously rebounded. These act as trading signal sources.
• Yellow lines – trend lines, trend channels, and other technical patterns.
• COT Indicator 1 on the charts – the size of the net position for each category of traders.