To open long positions on EUR/USD, you need:
No signals were formed for entering the market last Friday afternoon. Despite being able to surpass the 1.2136 level during the US session, trading was conducted mainly around this range and it was not possible to wait for clear signals to enter the market. The data on the US economy did not significantly support the dollar, so there wasn't a significant downward movement from EUR/USD. This tells us that buyers of the euro will try to return the pair to last month's high in the near future.
In case the euro falls in the first half of the day after we receive the data on the manufacturing activity index of the eurozone countries for January, buyers will need to focus on protecting support at 1.2099, and the pair's succeeding upward correction depends on it and also below it is the lower limit of the new rising channel lies. A good fundamental report on the eurozone, indicating an improvement in the manufacturing sector, will make it possible for a false breakout to form in the support area at 1.2099, which will then create a good entry point into long positions. An equally important task for the bulls is to settle above the resistance of 1.2136, which was not possible last Friday. A breakout and being able to settle at this level along with a downward test will surely create a good signal to buy the euro in order for it to reach the weekly high of 1.2175, where I recommend taking profit. In case bulls are not active in the support area of 1.2099, it is better not to rush into long positions, but to wait for an update of the low of 1.2060. You can buy the euro from there immediately on a rebound, counting on an upward correction of 15-20 points within the day.
To open short positions on EUR/USD, you need:
The bears' initial task for the first half of the day is to form a false breakout in the resistance area of 1.2136. Weak eurozone data will certainly make it possible for the bears to implement this scenario, which will result in creating a signal to enter short positions with the main goal of returning to the support area of 1.2099. A breakout and being able to test this level from the bottom up will create a new entry point for short positions while the downward correction continues, which will then push EUR/USD lower to the year's low towards the 1.2060 area, where I recommend taking profit. If we observe an upward correction from the euro in the afternoon, and the bears are not active in the resistance area of 1.2136, as it was last Friday, then it would be best to postpone short positions until the high of 1.2175 has been tested, from where you can sell EUR/USD immediately on a rebound, in hopes for it to decline by 15-20 points within the day.
The Commitment of Traders (COT) report for January 19 showed a sharp increase in long positions and a slight increase in short ones. Most buyers of risk assets believe in the bullish trend despite all fundamental data and restrictive measures in most European countries, which may last until February. Demand for risk assets advances amid a significant downward correction from the highs of this year. This allows new big players to enter the market. Problems with vaccination in Europe and weak fundamental data prevent buyers of risk assets from increasing the volume of trades. However, market participants remain positive amid a possible lifting of lockdown measures. The euro's rally is also halted by a risk that the EU authorities may prolong the quarantine in February. The COT report indicated that long non-commercial positions rose from 228,757 to 236,533, while short non-commercial positions only increased from 72,867 to 73,067. Due to the sharp rise in long positions, the total non-commercial net position increased to 163,466 against 155,890 a week earlier.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates market uncertainty regarding the succeeding direction.
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.
Bollinger Bands
A breakout of the lower border at 1.2120 will increase pressure on the euro. Growth will be limited by the upper level of the indicator around 1.2145.
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.
