Yesterday was quite an interesting trading day. Traders received several perfect signals to enter the market. Let us take a look at the 5-minute chart to find out what really happened. Earlier, I asked you to focus on the level of 1.0571 to decide when to enter the market. Germany's inflation report met forecasts, thus boosting the euro.As a result, the price made an unsuccessful attempt to rise above 1.0571, thus showing a false break. According to the scenario I published earlier, this action allowed us to open short positions from the upper limit of the range. As a result, the pair dropped by more than 70 pips. In the second part of the day, after a false break and publication of the US inflation figures, traders got a good buy signal, thus allowing the pair to recover to1.0571. A false break of this level gave another short signal. Against the backdrop, the euro dropped to 1.0519 and traders received 50 pips in income.
Conditions for opening long positions on EUR/USD:
Yesterday's US inflation report once again proved that the country has serious problems. Although the CPI slackens, the base inflation, which the Fed mainly takes into account, continues growing on a yearly basis. All this points to the necessity to take decisive measures concerning the key interest rate hike. It is a signal to open long positions on the US dollar. Today, in the first part of the day, the eurozone is not planning to publish any economic report. Thus, bulls have a chance to regain control over the market. To do so, they should show their activity slightly above 1.0525. Since pressure on risky assets is returning, buyers should protect this year's low of 1.0473. If the pair declines, that is highly possible, only a false break of this level will give a buy signal. In this case, the pair may recover to 1.0525. A break and a downward test of this level may give a long signal, allowing the pair to return to 1.0575, where it is recommended to lock in profits. A farther target is located at the high of 1.0638. However, the pair will hardly reach this level amid the Fed's aggressive policy. If the euro falls and bulls fail to protect 1.0473, it will be better not to open long positions. Traders may go long after a false break of the low of 1.0426. Long orders could also be initiated from 1.0394 or lower – from 1.0347, expecting a rise of 30-35 pips.
Conditions for opening short positions on EUR/USD:
Yesterday, sellers were waiting for Christine Lagarde's speech. They managed to benefit from the absence of interest in risk assets and pushed the euro significantly lower. The ECB President said that it would be a good idea to raise the benchmark rate in July, but traders ignored the comment. Today, sellers should primarily protect the nearest resistance level of 1.0525, which is acting as the middle of the sideways channel. Today, traders may open short positions after a false break of 1.0525, thus returning pressure on the euro and making it fall to the lower limit of the range at 1.0473. If bulls fail to be active at this level, in the first part of the day, the euro may break and settle below 1.0473. An upward test of this level will give a sell signal, thus intensifying the bearish trend and pushing the price to its yearly low of 1.0434, where it is recommended to lock in profits. A farther target is located at 1.0394. If the euro/dollar pair rises in the first part of the day and bears fail to protect 1.0525, nothing important will happen. However, the pair may jump. Thus, it will be wise to go short after a false break of 1.0575. Sell positions could also be opened from 1.0638 or higher – from 1.0691, expecting a decline of 30-35 pips.
COT report
According to the COT report from May 3, the number of short positions surged, whereas the number of long positions declined. The recent announcements made by central banks spurred a sell-off of risk assets. The fact is that it became obvious that developed economies will hardly avoid grave problems. A sharp increase in the US key interest rate by 0.5% made investors focus on the US dollar as a safe-haven asset. High inflation is a serious problem not only for the US, but also for the whole world. In addition, rapid tightening of the Fed's monetary policy is making the greenback attractive for investors. The ECB President also pinpointed the necessity of a faster change in monetary policy. It is expected that the central bank will discontinue asset purchases by the end of the second quarter of the year. The first key interest rate hike is planned to take place this autumn. While the ECB is just planning, the Federal Reserve is taking measures. Against the backdrop, the greenback is becoming more and more attractive. However, a lot will depend on the US inflation report and market reaction. If inflation falls a bit, pressure on the euro may become weaker, thus boosting risk assets and allowing the euro to form an upward correction. In the latest reporting week to May 5, the number of long positions dropped to 208,449 from 221,003, whereas the number of short positions soared to 214,827 from 189,702. Notably, the euro's low price is making it attractive for traders. That is why the asset remains in demand despite the dominance of the bearish sentiment. According to the week's results, total non-commercial net position decreased to -6,378. The weekly close price slumped to 1.0545 from 1.0667.
Signals of indicators:
Moving Averages
Trading is performed below 30- and 50-day moving averages, thus pointing to a return of pressure on the euro.
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.
