On Friday, the afternoon turned out to be much more interesting than the first. I suggest you take a look at the 5-minute chart and figure out what happened. I paid attention to the level of 1.0743 in my morning forecast and advised you to make a decision on entering the market from it. The euro quickly returned to the support area of 1.0743, but during the first test, the bulls tried to show strength and formed a false breakout there in order to continue the pair's growth. This led to a signal for long positions, but it never resulted in a sharp upward movement. Repeatedly testing 1.0743 led to disappointment, but in fairness it must be said that I did not see a reverse test from the bottom up, so I had to skip the downward movement, although I focused on it in my forecast for the European session. In the afternoon, the bulls managed to adequately defend the 1.0703 support, and a false breakout resulted in an excellent entry point for long positions. As a result, there was an increase of 40 points. Failure to settle above 1.0744 and returning to the area below this level is a signal for short positions, which led to a quick return of the pair back to 1.0703 and brought about 40 more points of profit. It was rather difficult to count on growth from 1.0703 for the second time, but those who opened long positions on a false breakout also managed to earn about 20-25 points.
When to go long on EUR/USD:
Today is expected to be a fairly calm day due to the lack of important statistics on the eurozone and a holiday in the US. Given that the end of the month is approaching, bulls have one last chance to show strength before taking profits. Pay attention during the European session to change the volume of retail trade and the price index for imports in Germany in April this year. A decline in the indicator may have a negative impact on the euro, which will lead to a slight decrease in the first half of the day.
The optimal scenario for opening long positions would be longs in the intermediate support area of 1.0738, formed at the end of the Asian session. A false breakout at this level will give a signal to buy the euro in the continuation of the bullish scenario and in hopes of reaching new highs in the 1.0779 area. A breakthrough and test from top to bottom of this range creates a new signal for entering long positions, opening up the possibility of updating 1.0811. It is unlikely that it will be possible to reach a more distant target in the area of 1.0844 today, but given the bullish trend in the pair, such a scenario cannot be ruled out.
If the EUR/USD declines and there are no bulls at 1.0738, the pressure on the euro will seriously increase. Bulls may start taking profits in anticipation of a larger downward correction. In this case, I advise you not to rush into long positions. The best option would be a false breakout near the low of 1.0703. I advise you to open longs immediately for a rebound only from the level of 1.0665, or even lower - in the area of 1.0630 with the goal of an upward correction of 30-35 points within the day.
When to go short on EUR/USD:
Last Friday the bears tried to be more aggressive, but as you can see, there are still enough people who want to buy the euro even at current levels. To return the pressure on the pair, it is necessary to return to the area under 1.0738, as it was last Friday. It will be possible to do this in case we receive disappointing statistics on the eurozone in the morning, since the expectation of a correction at the end of the week will probably prevail. In case the euro sharply moves up, I advise you to focus your attention on the nearest resistance at 1.0779. Forming a false breakout there creates an excellent signal to open short positions against the trend with the prospect of returning to support at 1.0738 - the level formed by the results of morning trading. A breakdown and consolidation below 1.0738, as well as a reverse test from the bottom up of this range - all this will lead to a sell signal with dismantling bulls' stops and a larger movement of the pair down to the 1.0703 area, just above which the moving averages pass. There you can think about partial profit taking.
A more distant target will be the area of 1.0665, where I recommend completely leaving short positions. Reaching this level will be very problematic given the lack of important statistics. If EUR/USD moves higher in the morning, and there are no bears at 1.0779, the upward trend will continue, which will strengthen the bulls' confidence that they are worthy of new highs. The best option in this case would be short positions in forming a false breakout in the area of 1.0811. You can sell EUR/USD immediately on a rebound from 1.0844, or even higher - in the area of 1.0894 with the goal of a downward correction of 30-35 points.
COT report:
The Commitment of Traders (COT) report for May 17 showed that long positions have further increased while short positions decreased. Traders continue to buy on the bottom, relying on new evidence and statements from representatives of the European Central Bank, which is serious about starting to raise interest rates in the near future. Representatives of various central banks of the eurozone have repeatedly spoken about this last week.
The ECB Governing Council is now expected to raise its deposit rate by a quarter point as early as July this year, then in September and once in December, bringing it to 0.25% by the end of the year. However, even this plan causes a number of criticisms from European politicians who demand more active actions from the ECB aimed at combating high inflation in the eurozone. The key interest rate is expected to be raised in September and December to 0.5% from its current zero level. The euro's potential for growth may also be fueled by rumors that the Federal Reserve may slow down in September with a further increase in interest rates after aggressive policy changes in the spring-summer period.
The COT report shows that long non-commercial positions increased by 2,540 from 228,230 to 230,770, while short non-commercial positions decreased by -1,270 from 211,701 to 210,431. The euro makes it more attractive for traders, and the change in the balance of power in favor of the bulls confirms this. As a result of the week, the total non-commercial net position increased and amounted to 20,339 against 16,529 a week earlier. The weekly closing price almost also slightly increased and amounted to 1.0556 against 1.0546.
Indicator signals:
Moving averages
Trading is above the 30 and 50-day moving averages, which indicates a continuation of the bull market.
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
In the event of a decline, the lower border of the indicator around 1.0703 will act as support. In case of growth, the upper border of the indicator in the area of 1.0760 will act as resistance.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that 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 non-commercial positions represent the total short open position of non-commercial traders.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
