To open long positions on EUR/USD, you need:
And although yesterday's data on the US economy led to a surge in volatility in the pair and strengthened the dollar's position, it was not possible to get out of the horizontal channel that formed during the European session. Let's take a look at the 5 minute chart and talk about what happened. In the absence of important fundamental reports for the euro area, it was quite surprising to see the euro rise to the resistance area of 1.2108, where I advised you to open short positions. Considering that we fell short of reaching this level by two points, some could miss this signal, but I opened short positions, as I was confident that the bear market that formed yesterday would continue. As a result, we managed to take around 30 points of profit. Those who were more stubborn waited until the pair surpassed support at 1.2066 and the euro to sharply fall below this level, which is more than 50 points of profit. But the afternoon was more calm, since none of the levels I indicated in the forecast was ever updated, respectively, and I also failed to get the desired entry point.
Today promises to be quite volatile as well, as rather strong reports on the American economy are expected, which can strengthen the dollar's positions against the euro. But before that, it is necessary to follow the European Central Bank's report on monetary policy that should be released in the morning. Bulls need to protect yesterday's support at 1.2055 to prevent EUR/USD from falling further, which was formed at the beginning of the day after the bears failed to continue the downward trend. Forming a false breakout there will be a signal to open long positions in hopes that the euro would recover in the short term so it can reach the resistance area of 1.2103. Moving averages, playing on the side of the bears, also pass there, which limits the pair's upward potential. A breakthrough and consolidation above 1.2103 with a reverse test from top to bottom, as well as hints from the European Central Bank of a possible curtailment of the bond buyback program, creates a signal to open new long positions in order to form a new upward trend to the high of 1.2149, where I recommend taking profits. The next target will be the level of 1.2180, but one can hardly bet on such an active growth by the end of this week. If the bulls are not active in the area of 1.2055 in the first half of the day, most likely the pressure on the pair will increase and we will see an update of the next large low in the area of 1.2023. There, I advise you to open long positions immediately on a rebound from the expectation of an upward correction of 20-25 points within the day.
To open short positions on EUR/USD, you need:
The bears will struggle to continue the downward correction, and for this they need to take control of the large support level of 1.2055. The European Central Bank minutes are unlikely to seriously affect the euro, so it is better to act exactly according to yesterday's scenario: a breakthrough and test of the level of 1.2055 from the bottom up on volume will generate a signal to sell the euro in order to continue the downtrend towards the 1.2023 low, while the next target will be a larger support at 1.1988, which coincides with this month's lows. I recommend taking profit there. In the event of an upward correction in the morning, by analogy with the previous day, then it is best not to rush to sell: forming a false breakout in the resistance area of 1.2103 generates a new signal to sell the euro for the purpose of falling along the trend. If bears are not active at this level, then I recommend postponing short positions immediately to rebound from a large resistance at 1.2149, counting on a downward correction of 15-20 points within the day. The next resistance is only at this month's high at 1.2180.
The Commitment of Traders (COT) report for May 4 showed that both short and long positions have increased, but now there were more buyers, which led to an increase in the overall non-commercial position. Last week, everyone was waiting for the US labor market report and hoped that risky assets would continue to grow, which is what happened. Therefore, the growth in long positions outweighed short ones. The disappointing report further proves that the Federal Reserve will continue to stay on track even with a sharp economic jump. This strategy will keep the pressure on the US dollar and will allow further build-up of long positions in risky assets, which will push EUR/USD upwards. The COT report indicated that long non-commercial positions jumped from 200,415 to 206,472, while short non-commercial positions rose from 119,448 to 121,643. This indicates an influx of new buyers with the expectation that the euro will continue to grow, however with each renewal of the high, there are more and more people willing to sell. The more the euro will show growth this month, the stronger the influx of new sellers will be, as changes in the Fed's monetary policy have not been canceled this year. The total non-commercial net position increased from 80,967 to 84,829. The weekly closing price, on the contrary, declined from 1.20795 to 1.20591.
Indicator signals:
Trading is carried out below 30 and 50 moving averages, which indicates that the euro will further decline along the newly formed trend.
Moving averages
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
Surpassing the upper border of the indicator in the area of 1.2090 will lead to a new wave of growth for the euro. Surpassing the lower border of the indicator around 1.2055 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.
