Yesterday was an interesting trading day and traders received several signals to enter the market. Let's take a look at the 5-minute chart to clear up the market situation. Earlier, I asked you to pay attention to the level of 1.0580 to decide when to enter the market. A decline to 1.0580 and a test of this level led to a false break and a long signal. Thus, the pair continued climbing after the announcements of the Fed's decision on the key interest rate. However, the euro/dollar pair increased just by 25 pips and then slowed down. A sharp drop in Germany's and Italy's industrial production disappointed buyers of the euro. In the second part of the day, bears broke 1.0580, but the pair lacked just 5-7 pips to upwardly test this level (blue lines in the chart). That is why I decided not to sell the euro. At the same time, a slump to 1.0526 and an upward test of the level gave a sell signal, which brought 20 pips.
Conditions for opening long positions on EUR/USD:
The recent Fed's decision to raise the benchmark rate by 0.5% had only a short-lived effect on buyers of risk assets. Pressure on the euro returned and now bears are planning to push the price to new yearly lows. The US labor market data may also contribute to the situation. However, it will be published only in the second part of the day. During the European session, Germany will disclose its industrial production report and Italy is going to unveil its retail sales figures. The data is expected to be below the forecasts. Traders are likely to ignore a speech that will be provided by Member of the Governing Council of the ECB Joachim Nagel since he will hardly tackle any monetary policy issues. That is why today, buyers should primarily protect the intermediate support level of 1.0518. Only strong data from Germany and Italy will cause a false break and a further rise in the pair. Yesterday, bulls lost momentum even amid a jump in the US unemployment claims. In this case, the euro/dollar pair may return to 1.0563. A break and a downward test of this level will give a new long signal, allowing the pair to return to 1.0601, where it is recommended to lock in profits. A farther target is located at this week's high of 1.0646. However, the price will be able to climb to this level only in case of a strong upward correction caused by the US labor market data. If the euro/dollar pair drops and buyers fail to protect 1.0518, it will be wise to avoid opening long positions. Traders may consider long positions after a false break of the low of 1.0473. It is also possible to go long from 1.0426 or lower – from 1.0394, expecting a rise of 30-35 pips.
Conditions for opening short positions on EUR/USD:
Sellers regained control over the market and now almost nothing may prevent them from reaching the yearly low. Today, they should primarily protect the resistance level of 1.0563. If data from the eurozone turns out to be strong, the euro may jump to this level. Thus, it will be better to open short positions after a false break of 1.0536. In this case, the pair may slide to 1.0518. If the eurozone statistical data is weak, the euro may settle below 1.0518. An upward test of this level will give a perfect sell signal. In this case, the price may drop to a new yearly low of 1.0473, where it is recommended to lock in profits. A farther target is located at 1.0426. However, this scenario will become possible only if the US publishes strong data on its labor market. If the euro/dollar pair rises in the first part of the day and bears fail to protect 1.0563, the downward movement may face some obstacles. The euro may show a sharp increase. Against the backdrop, it will be wise to go short after a false break of 1.0601. It is also possible to sell the asset from 1.0646 or higher – from 1.0691, expecting a drop of 25-30 pips.
COT report
According to the COT report from April 19, the number of short positions jumped, whereas the number of long positions dropped. The recent comments provided by representatives of central banks led to a massive sell-off of risk assets. The central banks' officials made it clear that developed economies are likely to face grave problems this year. Although the ECB president emphasizes that the regulator is planning to close its asset-purchasing program by the end of the second quarter, it is not enough to support the euro. The Fed's more aggressive policy and its intention to raise the benchmark rate by 0.75% in May are supporting the greenback. In addition, global economic slowdown could be caused by quarantine measures imposed in China to curb the new virus wave. Such actions have already led to serious disruptions in supply to European and Asian countries. Against the backdrop, demand for the US dollar remains very high, thus pushing the euro/dollar pair lower. Military actions in Ukraine are also exerting pressure on the euro. The COT report unveiled that the number of long non-commercial positions dropped to 221,003 from 221,645, while short non-commercial positions surged to 189,702 from 182,585. The decline in the euro makes it more attractive for investors. At the end of the week, the total non-commercial net position decreased to 34,055 against 39,060. The weekly closing price collapsed to 1.0814 against 1.0855.
Signals of indicators:
Moving Averages
Trading is performed below 30- and 50-day moving averages, thus pointing to bears' attempt to make the pair resume falling.
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
A break of the lower limit of the indicator located at 1.0500 may cause a new decline in 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.
