Long positions on EUR/USD:
In my forecast this morning I drew your attention to the level of 1.0884 and recommended entering the market from this level. Let's have a look at the 5-minute chart and analyze what happened. The strong data from Germany was ignored, which led to the false breakout at 1.10884, and the pair formed a sell signal. The Sentix Investor Confidence index from the eurozone was much worse than economists had expected, triggering another sell-off of the euro and dragging the currency to the support area at 1.0844. As a result, there was a profit of about 40 pips. In the second half of the day, the technical picture has changed only slightly.
The lack of positive news continues to affect the sentiment of investors and traders, which was confirmed by the Sentix Investor Confidence this morning. It dropped to -7 points from 16, which is very bad for risky assets, including the euro. There will not be a meeting between Russia and Ukraine in the near future, which will put pressure on the EUR/USD pair. In the afternoon, there is only the report on the consumer credit in the US, which will not play an important role in the pair's further direction, so I advise to keep short positions due to the intensification of the geopolitical conflict. During the US session, bulls need to hold the price above support at 1.0837, which was revised from the level of 1.0844. The formation of a false breakout, in case the pair declines to 1.0844 after the release of strong US economic data, may allow euro buyers to recoup their losses, which will give an entry point into long positions. It is possible to count on a larger recovery of EUR/USD only after smoothing military tension and active actions of buyers around 1.0884, above which they failed to break through in the morning. A breakthrough of this level, though it will not stop the bearish market, will clearly put it on pause. A reversal of this range, the weak US data may form a buy signal and open the way to the recovery to the area of 1.0936, where the moving averages are located, which are on the sellers' side. A more distant target is 1.0978, where traders may lock in profits. As I noted above, the geopolitical tension will affect the euro, so it is better not to count on a large rise. In case there is no activity at 1.0837, traders will start closing long positions, which will only increase the pressure on the pair. Therefore, it would be better to postpone buying the pair until the false breakout occurs around a new low at 1.0801. The formation of a divergence on the MACD indicator at this point will be a confirmation of the entry point into long positions. It is possible to buy the euro immediately on a rebound from the level 1.0772 or even lower at 1.0728, allowing an upward intraday correction of 20-25 pips.
Short positions on EUR/USD:
Bears managed to hold the price below this morning's resistance and continued to put pressure on the euro, aiming at the next support at 1.0837. There is no good news, and the risk of more aggressive Fed policy in the fight against inflation, which may even reach 8% in February - all this makes traders buy the US dollar. In the second half of the day, bears need to hold the price below resistance at 1.0884. A false breakout of this level, as well as strong consumer credit data in the US, will form a signal to open short positions with the aim to continue the EUR/USD bearish trend down to 1.0837. A breakthrough of this level is very important because in this scenario bears will be more active, retaining full control of the market as well as a retest of the daily lows during the US session. A reversal test of the bottom at 1.0837 will give an additional signal to open the short positions, with the prospect of falling to the low of 1.0801. There is also 1.0772, where traders may generate profit. If the euro grows during the Us session and there is a lack of activity from bears at 1.0884, nothing bad is likely to happen, but it is better to postpone selling the pair. The optimal scenario would be to take short positions if a false breakout occurs around 1.0936, where the moving averages pass. It is possible to sell the EUR/USD pair immediately on a rebound from 1.0978, or even higher at 1.1016 allowing a downward correction of 15-20 pips.
The COT (Commitment of Traders) report for February 22 once again showed a decrease in both long and short positions, which led to an increase in the positive delta, as there were far fewer short positions. Under the conditions of the tough geopolitical conflict, which has affected almost the whole world, there is no sense to talk about what the policy of the European Central Bank or the Federal Reserve System will be, because in case the military conflict aggravates, it will not make any difference. Now, Russia and Ukraine are negotiating, and much will depend on the results of these meetings as there will be many of them. In the current environment, it would not be right to consider the COT report, especially given its secondary informative status for traders. I advise to be rather cautious with risky assets and buy the euro only as the tense relations between Russia, Ukraine, the EU, and the USA weaken. Any new sanctions against Russia will have serious economic consequences, which will affect financial markets and not only the Russian ruble but the European currency. This will happen because of Russia's response to the sanctions, which will clearly add pressure on the euro. The COT report indicates that long non-commercial positions decreased only slightly to 214,195 from 217,899, while short non-commercial positions decreased to 155,889 from 170,318. This means that there are fewer buyers willing to sell the euro, but this does not add buyers to the market. It seems that traders prefer to wait out the events, which are now rapidly gaining momentum. At the end of the week, the total net position rose to 59,306 against 47,581. The weekly closing price was unchanged at 1.1309 against 1.1305 a week earlier.
Indicator signals:
Moving averages
Trading is below the 30 and 50-day moving averages, indicating a bear market.
Note: Period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of classic daily moving averages on a daily chart D1.
Bollinger Bands
In the case of growth, the middle indicator border around 1.0884 will act as resistance. A breakthrough of the lower boundary of the indicator at 1.0817 will increase the pressure on the euro.
Indicators description
- Moving average (moving average, defines the current trend by smoothing volatility and noise). Period 50. On the chart, it is marked in yellow.
- Moving average (moving average, defines the current trend by smoothing volatility and noise). It has a period of 30. It is marked in green on the chart.
- MACD (Moving Average Convergence/Divergence) indicator Fast EMA of period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands. Period 20
- Non-commercial traders are speculators, such as individual traders, hedge funds, and large institutions, which 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 Noncommercial positions represent the total short open position of noncommercial traders.
- The total non-commercial net position is the difference between short and long positions of non-commercial traders.
