To open long positions on EUR/USD, you need:
In yesterday's forecast, I mentioned that good data on business sentiment in Germany and the eurozone led to a breakout and consolidation above the resistance of 1.2102, and being able to test this level from top to bottom, which I highlighted on the chart, resulted in creating an excellent entry point in long positions for the purpose of rising towards the resistance area of 1.2142. This level was updated in the afternoon, and forming a false breakout there led to an excellent entry point into short positions, counting on a downward correction of 20-25 points, which happened.
The technical picture has changed at the moment and focus is on the 1.2130 level, on which the pair's succeeding direction will depend. We are expecting the eurozone inflation report in the first half of the day, and if it turns out to be better than the forecasts of economists, then we can expect the euro to grow further. As long as trading is carried out above the 1.2130 area, the demand for the euro will also be at a fairly high level. In case EUR/USD falls, forming a false breakout in the 1.2130 area will be another proof of the presence of large buyers in the market. An equally important task for the bulls is to update resistance at 1.2174, where it will be possible to observe the next profit taking. A breakthrough of this range will only be possible in the afternoon, when Joe Biden is inaugurated. Testing the 1.2174 area from top to bottom creates a good signal to enter long positions in hopes of reaching the high of 1.2220, where I recommend taking profits. If the bulls are unable to do anything in the support area of 1.2130 in the first half of the day, it is best not to rush to buy, but wait for a downward correction towards a more powerful area of 1.2089, from where you can open long positions immediately on a rebound, counting on an upward movement of 20-25 points within the day. A breakout of this area will create a new bear market.
To open short positions on EUR/USD, you need:
Euro sellers will focus on being able to settle below the 1.2130 support. Weak reports on the eurozone economy and inflation will increase the pressure on the euro. A breakout and test of this level from the bottom up will create a new signal to open short positions and open a direct road to the 1.2089 level, where the moving averages pass, playing on the side of the bulls. The pair's succeeding growth depends on this range, so a breakout will result in removing a number of stop orders and to a larger movement of EUR/USD down to the area of 1.2055, where I recommend taking profits. In case the euro grows further, it is best not to rush to sell, but wait for an update of resistance at 1.2174, where forming a false breakout will be a signal to open short positions. I recommend selling EUR/USD immediately on a rebound from the 1.2220 level, counting on a downward correction of 20-30 points within the day. Much will depend on what Joe Biden says after his inauguration, which could significantly weigh on the US dollar.
The Commitment of Traders (COT) report for January 12 recorded a sharp increase in long positions and a reduction in short ones. Buyers of risky assets continue to believe in a bullish trend, especially after such a large decline in the euro earlier this year, which made it possible for new large players to enter the market. Vaccination against the first strain of coronavirus continues in Europe, leading to new buyers for the euro. The likely approval of the next $1.9 trillion bailout plan for the US economy is likely to further erode the dollar. A limiting factor for the euro's growth is the risk of extending quarantine measures in February this year, both in Germany and in a number of other European countries. Thus, long non-commercial positions increased from 224,832 to 228,757, while short non-commercial positions fell from 81,841 to 72,867. Due to the sharp drop in short positions, the total non-commercial net position increased from 143,902 to 155,890 a week earlier.
Trading is carried out above 30 and 50 moving averages, which indicates further growth for the euro.
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.
A breakout of the upper border of the indicator in the 1.2145 area will lead to a new wave of euro growth. A break of the middle border in the 1.2130 area will increase the pressure on the pair.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions represent the total long open position of non-commercial traders.
- Short non-commercial positions represent the total short open position of non-commercial traders.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.