Yesterday, traders received several interesting signals to enter the market. Let us take a look at the 5-minute chart to clear up the market situation. In the first part of the day, the eurozone reports failed to cause a surge in volatility. Earlier, I asked you to pay attention to the level of 1.0849 to decide when to enter the market. The euro/dollar pair made an unsuccessful attempt to touch the resistance level amid the strong data on Italy's industrial production published at the beginning of the European session. As a result, we did not see a false break of this level so that we could open sell orders. The pair neither reached the nearest support level of 1.0810. In the second part of the day, a false break of 1.0810 led to a buy signal, thus allowing the pair to recover to 1.0849. Consolidation above this level gave an additional long signal, thus boosting the pair by 45 pips to 1.0886. There, bears tried to protect this level, thus provoking a decline of 15 pips.
Conditions for opening long positions on EUR/USD:
The US producer price index figures turned out to be higher than expected. However, traders ignored the data like the US inflation report published a bit earlier. As a result, the euro gained in value in the second part of the day. Today, most traders are focused on the ECB meeting that may considerably change the market sentiment. The ECB's key interest rate decision and report on its monetary policy will be of primary importance. In addition, during a press conference,Christine Lagarde will disclose the regulator's plans about the monetary policy changes.If the ECB president hints about the key interest rate hike by the end of the year, the euro will jump against the US dollar. If the rhetoric remains dovish, the euro will be under pressure again. In case of a decline in the pair, only a false break of 1.0885 will give the first buy signal. However, to start an upward correction, the pair should rise and bulls should be very active above 1.0931. It is an important level that bears have been protecting since April 6. A break and a downward test of the level will give an additional signal to open long positions, thus allowing the pair to recover to 1.0970. If the euro exceeds this level and Christine Lagarde provides hawkish comments, the asset will have a chance to increase to such highs as 1.1007 and 1.1041, where it is recommended to lock in profits. If the euro falls and buyers fail to protect 1.0885, it will be wise to avoid opening long positions. It will be also possible to go long after a false break of the low of 1.0846. Traders may open long positions from 1.0810 or lower – from 1.0772, expecting a rise of 30-35 pips.
Conditions for opening short positions on EUR/USD:
Bears failed to show activity near monthly lows, thus forcing traders to leave the market ahead of the ECB meeting. Today, sellers should protect the nearest resistance level of 1.0931. A false break of this level will give a sell signal with a target at the support level of 1.0885. However, a lot depends on the ECB's intention to cap the surging inflation. To continue falling, the pair should hit new local lows every day. However, today, it could be really difficult. For bears it will be better if the price remains trading sideways. A break and an upward test of 1.0885 will give a sell signal, thus allowing the pair to reach such lows as 1.0846 and 1.0810, where it is recommended to lock in profits. If the euro gains in value in the first part of the day and bears fail to protect 1.0931, the currency may skyrocket. However, only positive news on the Russia-Ukraine talks will allow the pair to form a stronger bullish trend. Thus, it will be wise to open short positions after a false break of 1.0970. Traders may also sell the euro from 1.1007 or higher – from 1.1041, expecting a drop of 25-30 pips.
COT report
According to the COT report from April 5, the number of both long and short positions increased. Notably, the number of buyers exceeded the number of sellers. Such data could be explained by the expectations of new measures from the ECB. The regulator has been emphasizing the necessity of a more aggressive approach for the last few weeks. However, the absence of positive news about the Russia-Ukraine talks and rising geopolitical tension are still having a negative influence on the euro. That is why bulls cannot form a strong upward correction. In the near future, the US and the eurozone are going to disclose important inflation data. The reports will contain more accurate figures on the consumer price growth after the beginning of the special military operation in Ukraine. This information will provide politicians with hints about further actions on monetary policy. This, in turn, may help us to predict a future movement of the euro/dollar pair. According to the COT report, the number of long non-commercial positions increased to 210,914 from 200,043, while the number of short non-commercial positions climbed to 183,544 from 178,669. Since the rise in the number of short positions was less significant than a jump in the number of long positions, the general non-commercial net position advanced to 27,370 compared to 21,374. The weekly close price slid to 1.0776 from 1.0991.
Signals of indicators:
Moving Averages
Trading is performed above the 30- and 50-day moving averages, which points to an attempt to form an upward correction.
Note: The period and prices of moving averages are considered by the author on the one-hour chart that differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
If the euro advances, the upper limit of the indicator located at 1.0940 will act as resistance. In case of a decline, the lower limit of 1.0820 will serve as support.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
- MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
- Bollinger Bands. The period is 20.
- Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions is a total number of long positions opened by non-commercial traders.
- Short non-commercial positions is a total number of short positions opened by non-commercial traders.
- The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.
