To open long positions on EUR/USD, you need:
Yesterday morning was not that active, and one could observe how the bulls tried to take control of the market, which in general they have succeeded. Let's take a look at the 5 minute chart and break down the entry points.
The bulls were not that active in the support area of 1.2154 during the European session, and the "smearing" of this level did not allow us to determine the entry point at the beginning of the European session. Then several false breakouts took place at the level of 1.2154, but even the signals formed there did not lead to the continuation of Friday's upward trend to the area of new local highs. In the afternoon, the levels were revised and the bears took over. Failure to rise above 1.2169 for the first time resulted in forming a signal to open short positions in the euro, but there was no major downward movement either. For the second attempt, the bulls settled above 1.2160, and the test of this level from top to bottom created an entry point into long positions, after which the pair quickly recovered to the resistance area of 1.2194, where the movement ended.
Before talking about further prospects for the EUR/USD movement, let's see what happened in the futures market and how the Commitment of Traders positions have changed. The Commitment of Traders (COT) report June 1 shows that long positions increased while short positions decreased, which indicates a growth in demand for the European currency in the last month of the second quarter of this year. The European economy is expected to show a particularly strong recovery in the summer, which will lead to new growth for the euro in the area of annual highs. Lifting a number of quarantine restrictions, which are still in effect in European countries, will lead to an even greater revival of the economy, which will provide momentum through an increase in retail sales and inflation, which, according to the latest report, has seriously increased in the eurozone. The data on activity in the manufacturing and service sectors also continue to delight economists, which again indicates a serious recovery. Any strong downward movement of the EUR/USD pair is now perceived by traders as a good opportunity to gain long positions in continuation of the bull market. The dollar can only hope that in the summer, the Federal Reserve will start to seriously talk about reducing the volume of purchases of bonds, but we will know about this only by mid-June. The COT report showed that long non-commercial positions jumped from 236,103 to 237,360, while short non-commercial positions fell from 132,103 to 128,038. This indicates an influx of new buyers that expect the euro to continue rising, while sellers have a wait-and-see attitude. Considering the fact that the pair significantly recovered last Friday, this may indicate the formation of a new upward trend and the return of EUR/USD to local highs. This is where the bulls will continue to accumulate long positions in hopes of going beyond them. This indicates a possible breakdown of last month's highs in the near future and the continued growth of the euro. The total non-commercial net position rose from 104,000 to 109,322. The weekly closing price also increased from 1.22142 to 1.22326.
Traders were not delighted with yesterday morning's volatility, however, a completely different result is expected today. During the European session, a lot of important fundamental data is released. Particular attention will be drawn to the indicators on the index of business sentiment from the ZEW institute of the euro area, changes in GDP and employment in the euro area. Even in spite of their possible deterioration, the pressure on the euro is unlikely to persist for a long time, and bulls will use the moment to protect support at 1.2155. Forming a false breakout there creates a signal to open long positions, and the bulls will aim for resistance at 1.2201, beyond which it was not possible to get out of yesterday. A breakthrough and test of this area from top to bottom can create an entry point into long positions in continuation of the upward trend, counting on the next high of 1.2225. The next target will be the 1.2250 level, where I recommend taking profits. In case we receive a disappointing report for the eurozone and bulls are not active around 1.2155, short positions can be safely opened from a large low in the area of 1.2113, or even lower - around 1.2073, counting on an upward correction of 15-20 points within the day. If the bulls fail to get out of resistance at 1.2201 today , trading will continue in a new wide horizontal channel 1.2123-1.2201.
To open short positions on EUR/USD, you need:
The bears will fight to regain control of the market, and in order to do so it is necessary to protect the large resistance at 1.2201, which the bulls are currently aiming for. This level also acts as the upper border of the horizontal channel. Forming a false breakout there generates a signal to sell the euro for the purpose of pulling it down to the area of the middle border of the horizontal channel at 1.2155, where the moving averages are located, playing for the bulls. A breakthrough of this level will pull the pair into a downward correction, which will limit a succeeding bull market, at least temporarily. An equally important task is to settle below the 1.2155 range. Disappointing reports on the sentiment index in the business environment in Germany and the eurozone, as well as a test of this level from the bottom up - can create an additional signal to sell the euro in order to return to the lower border of the horizontal channel at 1.2113, where I recommend taking profit. The next target will be the low of 1.2073, but such a scenario is hardly possible without serious market shocks. If the bears are not active in the 1.2201 area this morning, then I recommend postponing short positions immediately to a rebound from resistance at 1.2225, or even higher - from a high of 1.2250, counting on a downward correction of 15-20 points. The next serious level is at a new local high in the area of 1.2283.
Indicator signals:
Trading is carried out above 30 and 50 moving averages, which indicates that the euro will continue to rise.
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 1.2205 will lead to a new wave of growth for the euro. A breakthrough of the lower border of the indicator in the area of 1.2155 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.
