Yesterday, traders received several good signals to enter the market, which allowed them to make a profit. Let us focus on the 5-minute chart to clear up the situation. Earlier, I attracted your attention to such levels as 1.0888 and 1.0931 so that you could decide when to enter the market. Unfortunately, in the first part of the day, we did not receive a good buy signal near 1.0851. The pair broke this level very smoothly and did not downwardly test it. Meanwhile, the pair broke and downwardly tested the level of 1.0888, thus giving traders a perfect buy signal. As a result, the pair added 40 pips and then tested the resistance level of 1.0931. A false break of this level caused a sell signal, thus pushing the price lower by 40 pips. In the second part of the day, traders were waiting for Jerome Powell's comments. That is why the number of buyers significantly dropped. A break and an upward test of 1.0888 led to a perfect sell signal, which made the pair lose 50 pips.
Conditions for opening long positions on EUR/USD:
Yesterday, Fed's Chair Jerome Powell officially announced his decision to raise the benchmark rate by 0.50% during the meeting that is scheduled for May. He also supported further tightening of monetary policy aimed at capping inflation. Against this backdrop, the US dollar appreciated against some risk assets, including the euro. Today, the eurozone is going to disclose a bulk of macroeconomic reports. The eurozone will publish data on the manufacturing, services, and composite PMI. Positive data is likely to boost the single currency. However, this time, the asset will hardly show a considerable rise. The fact is that the European economy is expected to go on slackening amid the Ukrainian conflict and sanctions imposed against Russia. High inflation pressure also has a significant influence on the GDP growth rate. It would be better if traders start opening long positions after a drop to 1.0825. A false break of this level will give the first buy signal, thus prolonging the upward correction, which began this week. In this case, the pair will have a chance to exceed 1.0894. Notably, only a positive reaction to the eurozone macroeconomic figures will allow the euro/dollar pair to break and downwardly test this level, providing traders with a new long signal. If the forecast comes true, the pair will be able to reach its weekly highs of 1.0931. A farther target is located at 1.0970, where it is recommended to lock in profits. If the price drops and bulls fail to protect 1.0825, which is highly possible amid the Fed's policy, it will be wise to avoid long positions. Traders may consider long orders after a false break of the low of 1.0795. It is also possible to go long from 1.0761 or lower – from 1.0723, expecting an increase of 30-35 pips within the day.
Conditions for opening short positions on EUR/USD:
Yesterday, sellers proved their presence in the market. The pair's movement in the first part of the day will depend on the eurozone reports. That is why today, sellers should first protect the nearest resistance level of 1.0858. A false break of this level will spur a sell signal with the target at 1.0825. A further movement of the pair depends on this level.The price is likely to go on falling, if it breaks and consolidates below this level. At the same time, an upward test of this level will cause a new sell signal with the target at 1.0795. This will allow the pair to hit a new monthly low of 1.0723. However, this scenario will become possible only in case of a bearish reaction to the eurozone macroeconomic figures. If the euro climbs in the first part of the day and bears fail to protect 1.0858, the euro may show a sharp rise. Against the backdrop, traders should open sell orders after a false break of 1.0894. It is also possible to consider short positions from 1.0931 or higher – from 1.0970, expecting a drop of 25-30 pips.
COT report
According to the COT report from April 12, the number of long positions surged, whereas the number of the short ones dropped. Such a change reflects expectations that the ECB will take some measures to cap inflation growth. Christine Lagarde announced such a possibility last week. The fact is that the ECB is planning to complete the asset purchase program by the third quarter of the year and start increasing the benchmark rate to curb inflation that has a significant influence on households. Notably, many countries have faced such a problem. The previous week's report unveiled that the US consumer price index approached the highest level last seen 40 years ago. This fact may force the Fed to take even more radical measures. During the next meeting, which is scheduled for May, the regulator may raise the key interest rate by 0.5%. Against this backdrop, demand for the US dollar remains high, thus pushing the euro/dollar pair lower. The euro is also affected by the Russia-Ukraine conflict and the lack of progress in the negotiations.The COT report reads that the number of long non-commercial positions increased to 221,645 from 210,914, whereas the number of short non-commercial positions inched down to 182,585 from 183,544. Although the number of long positions jumped, we should remember that the COT report is of minor importance since the market situation changes rapidly. In other words, these figures do not reflect the real state of affairs. On the other hand, a drop in the euro makes it more attractive for investors. That is why a jump in long positions was quite expectable. According to the previous week's results, the total non-commercial net position climbed to 39,060 from 27,370. The weekly closing price slumped by almost 100 pips to 1.0877 from 1.0976.
Signals of indicators:
Moving Averages
Trading is performed below the 30- and 50-day moving averages, thus pointing to bears' attempt to regain control over the market.
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
In case of a rise, the upper limit of the indicator located at 1.0870 will act as resistance. A break of the lower limit of the indicator located at 1.0820 will increase pressure on the euro.
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.
