To open long positions on EUR/USD, you need:
Yesterday was not the most profitable day for trading the European currency. Let's look at the 5-minute chart and figure out what happened. In my morning forecast, I paid attention to the level of 1.1190 and advised you to make decisions on entering the market. Low activity of bulls in the first half of the day due to a weak report on the growth rates of eurozone GDP in the fourth quarter of this year did not lead to an update of the nearest resistance of 1.1190. For this reason, no entry points were formed. In the afternoon, it was possible to observe a false breakout at the level of 1.1190, which led to a signal to sell the euro, but a loss was recorded on it. The market turned around and profit-taking on short positions began at the end of the month, which led to an increase in EUR/USD in the afternoon above the base of the 12th figure.
Before we talk about the future prospects of the EUR/USD movement, let's look at what happened in the futures market and how the positions of Commitment of Traders have changed. The Commitment of Traders (COT) report for January 25 showed that long positions had increased while short ones decreased, which led to a further increase in the positive delta. The demand for risky assets will continue to persist, because even after the results of the Federal Reserve meeting, where there were clear hints of an increase in interest rates in March 2022, the market did not react with a serious drop in risky assets, and the changing balance of power speaks for itself. This week, everyone is waiting for the results of the European Central Bank meeting, at which a decision on monetary policy will be made. Some traders expect that the central bank may resort to more aggressive statements aimed at policy changes in the near future and to abandon measures to support the economy due to the threat of high inflation. However, most analysts do not expect changes from the ECB. Much will depend on whether the ECB agrees to fully complete its emergency bond purchase program as early as March this year, or not. If so, the demand for the euro will only increase, since such actions will sooner or later lead to an increase in interest rates in the eurozone. The COT report indicates that long non-commercial positions rose from the level of 211,901 to the level of 213,408, while short non-commercial positions fell from the level of 187,317 to the level of 181,848. This suggests that traders continue to build up long positions on the euro in hopes of building an upward trend. At the end of the week, the total non-commercial net position remained positive and amounted to 31,569 against 24,584. But the weekly closing price decreased and amounted to 1.1323 against 1.1410 a week earlier.
As a result of the sharp growth of the euro, bulls are now in fairly good positions, allowing them to continue the correction. Given that a number of interesting reports on Germany are coming out this morning, which can help the euro strengthen its position, we can count on the pair continuing to grow in the short term.
The most optimal scenario for opening long positions will be a decline in the euro in the first half. Forming a false breakout at 1.1213, along with strong data on changes in retail trade volume, the PMI index for the manufacturing sector and the German unemployment rate - all this will lead to forming a signal to open long positions.
An active upward movement of the pair is also necessary. If the bulls are unable to offer anything when 1.1213 is tested, it is better not to hurry with long positions. A breakthrough of this level could lead to a larger sell-off. In this case, I advise you to buy EUR/USD only after updating the next support at 1.1181. There are moving averages, playing on the bulls' side. However, I advise you to enter the market only if a false breakout is formed. You can immediately open long positions on a rebound from the low of 1.1148, or even lower - in the area of 1.1107 while aiming for an upward correction of 15-20 points within the day.
An equally important task is to regain control of the 1.1265 level. A breakthrough and consolidation above this range, together with good data on the eurozone, will certainly increase risk appetite, which will form an excellent entry point for long positions in order to recover to the next resistance of 1.1297. Going beyond this range will return the bull market and lead to an update of the highs: 1.1323 and 1.1358, where I recommend taking profits.
To open short positions on EUR/USD, you need:
Bears no longer have much control over the market, but it is worth recognizing that so far this is only an upward correction, and it is difficult to say how much the initiative of bulls will be enough before the ECB meeting.
The optimal scenario for selling the euro this morning is when a false breakout forms at 1.1265. This creates an excellent entry point into short positions with the prospect of a decline in EUR/USD to the intermediate level of 1.1213, for which an active struggle can begin - unless, of course, there is a buyer in the market. Weak data on the manufacturing index of Germany and the eurozone, together with a breakthrough and a reverse test from the bottom up of this range, will form another signal to enter the market, which will push the pair to a low of 1.1181, where the moving averages pass and will open a direct road to 1.1148. A more distant target will be the area of 1.1107, where I recommend taking profits. A test of this level will negate all the bulls' efforts to build a correction.
If the pair recovers during the European session and bears are inactive at 1.1265, the optimal scenario will be short positions when a false breakout is formed in the 1.1297 area. It is possible to open short positions on EUR/USD immediately for a rebound from the highs: 1.1323 and 1.1358 while aiming for a downward correction of 15-20 points.
Indicator signals:
Trading is conducted above the 30 and 50 moving averages, which indicates an attempt by bulls to keep the market under their control.
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
Crossing the upper limit of the indicator in the area of 1.1265 will lead to an increase in the euro. A breakthrough of the average border of the indicator in the area of 1.1213 will increase the pressure of 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.
