Hourly chart of the EUR/USD pair
The EUR/USD pair increased by 70 points on Monday, afterwards it fell and started a downward movement. The first trading day of 2021 went by without updating the 2.5-year highs, although the pair came close to them during the day. However, it rebounded from the previous local high near the 1.2309 level and started a new round of downward movement. We remind you that the price had previously settled below the upward trend line, so the trend, according to this signal, changed to a downward trend. So now we should consider short positions, which we proposed to do in yesterday's review. However, we had to wait a long time for a new sell signal, since the pair was rising for most of the day. However, a few hours ago the MACD indicator turned down, which served as a sell signal. Thus, those novice traders who have already taken short positions have gained a small profit. Given the rather sharp and strong character of the downward movement that has begun, we can assume that it will continue. Therefore, it is better to keep sell orders open for now.
The EU and the US released reports on business activity in manufacturing areas. The European index turned out to be slightly below the forecasted value, but much higher than the key level of 50. Recall that the sector is considered to be growing when the result is above the value of 50, while it declines when the result is below. Thus, any value above 50 is a good value. The index was 57.1 in the US, which is slightly higher than the forecast value, but in general it does not matter. These reports are not the most important. The main thing was to make sure that there are no unexpected reductions in production areas. There were no more important news and macroeconomic reports during the day.
The US will publish another PMI on Tuesday, January 5, this time the ISM Manufacturing Index, which is considered more important than the one released today. However, as we said above, if nothing unexpected happens, the value of the ISM index will also turn out to be quite high, certainly above the level of 50. Germany will also publish data on retail trade for November, as well as on changes in the number of unemployed and the unemployment rate. But this is just one country out of 27, so the impact on the European currency rate will be minimal or even absent.
Possible scenarios on January 5:
1) Long positions have lost their relevance at the moment, as quotes have settled below the trend line, and the previous local highs have not been updated. Thus, in order to be able to re-consider buying the pair, you need to wait for a new upward trend or an eloquent cancellation of the downward trend that exists at the given time.
2) Trading for a fall looks more appropriate right now. Short positions should have already been opened by a sell signal from the MACD indicator. So now you are advised to keep short positions open today and tomorrow, with targets near the support level of 1.2185. Or before the MACD indicator turns up. In order to avoid possible losses (trades will still be left overnight), you are advised to place a Stop Loss order above the 1.2309 level.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
