What is needed to open long positions of EUR/USD
In the morning review, I turned your attention to the two important levels: resistance of 1.1989 and support of 1.1939. Now let's look at a 5-minute chart and discuss what has actually happened. Unfortunately, the pair just missed a few pips to form a fake breakout at about resistance of 1.1989. This is the level which the buyers approached tightly in the first half of the trading day. Hence, I had to miss that downward move which happened later. A fake breakout of 1.1939 enabled a buy signal for EUR/USD. However, at the moment of writing this review, a nice upward move did not happen. This suggests a scenario of a further decline of EUR/USD during the New York trade.
While the pair is trading above support of 1.1939, a buy signal could prove itself. Let me remind you that there is a faint hope for a further climb of EUR. The buyers, who failed to assert themselves during the European session, will hardly manage to win over the market in the second half of the day. Only another fake breakout at 1.1939 will cement expectations for a climb of EUR towards a swing high of 1.1989. Meanwhile, the pair has failed to surpass this level.
In the second half of the day, market participants await remarks from the US Fed officials and ECB policymakers. Besides, investors are alert to a weekly update on unemployment claims in the US. Such events could ensure enough volatility for trading. We will be able to speak about a further bullish trend only on condition the price breaks and fixes above resistance of 1.1989, testing this level upwards. This will create a comfortable market entry point with long positions. A new swing high will serve as a target where I recommend profit taking. The next major resistance is seen at about 1.2109. If EUR remains under pressure in the second half of the trading day and the bulls fail to take the lead at near 1.1939, it would be better to delay long positions until the price makes a lower low border of the trading range that is 1.1884. Please allow for an intraday upward correction of 20-25 pips.
What is needed to open short positions on EUR/USD
Upbeat macroeconomic data from the US will entail a new downward wave for EUR. If 1.1939 is broken, this will escalate pressure on the currency pair. If this level is tested upwards, this will generate a new sell signal with the nearest bearish target of 1.1884. A breakout and a test of this level upwards will create an extra signal to open short positions while the pair is extending the downtrend. In this case, the bears' task will be to make a lower low following 1.1838 where I recommend profit taking. If the pair grows in the second half of the day, only a fake breakout at near resistance of 1.1939 will signal opening short positions bearing in mind a further downtrend. In case the bears lack activity at about this resistance, it would be better to postpone selling until larger resistance of 1.1989 is tested. From there, it would be possible to sell EUR/USD immediately at a pullback, allowing for a 25030 pips downward correction intraday. The next major level is seen at near 1.2047.
Let me remind you that the COT report (Commitment of Traders) from March 9 logged a clear trend. Traders sharply slashed long positions and slightly increased short positions. It indicates that the market sentiment is shifting towards risky assets selling. This is confirmed by a steep drop of EUR in technical charts that has been going on since February 2021. Investors are still unnerved by soaring yields of bonds in many advanced economies that benefits the US dollar. Investors anticipate that the US will be the first to venture into a rate hike that adds the shine to the US currency.
The latest ECB policy meeting did not make any impact on the market as the regulator did not make crucial decisions, so investors did not revise sentiment. Thus, it would be a good idea to rush buying EUR but wait for lower quotes. Another factor of the medium-term pressure on EUR is coronavirus resurgence in Europe. A slow pace of mass vaccination makes the authorities postpone lifting lockdown measures until later time.
The economic outlook for the EU will improve only on condition the authorities lift restrictions that will revitalize the service sector. These prospects will revive a medium-term uptrend of EUR/USD. According to the COT report, long non-commercial positions contracted to 207,558 from 222,655 whereas short non-commercial positions increased from 96,667 to 105,624. As a result, the overall non-commercial net positions again dropped for the fourth week straight to 101,964 from 125,988 from a week earlier. The currency pair closed the week at 1.1812 against 1.2048 from a week ago.
Signals of technical indicators
Moving averages
The pair is trading slightly below 30- and 50-period moving averages. It indicates a range-bound market.
Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.
Bollinger Bands
In case EUR/USD declines, the indicator's lower border of about 1.1910 will serve as support. Growth will be capped by the upper border of near 1.2015.
Definitions of technical indicators
- Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
- Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
- MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
- Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
- Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Non-commercial long positions represent the total long open position of non-commercial traders.
- Non-commercial short positions represent the total short open position of non-commercial traders.
- The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.
