In the morning, the focus was on 1.0738. Entering the market could have been considered from this level. Let's turn to the 5-minute chart to get a picture of what happened in the market. After the first test, bulls managed to protect the level of 1.0738 and formed a false breakout there, which produced a buy entry point. However, the pair failed to go higher and returned to 1.0738. The quote then consolidated below the mark and retested it from bottom to top. At the moment of writing, the pair fell by about 18 pips. As long as the instrument trades below 1.0738, the downtrend is likely to continue. The technical picture has somewhat changed by the opening of the North American session.
When to go long on EUR/USD:
The euro came under pressure amid a sharp rise in the eurozone's inflation. Pressure on the currency is increasing amid profit taking on long positions at the end of the month. Fundamentals scheduled for the North American session are unlikely to change the situation. Bulls may well try to gain control over the 1.0745 resistance level formed during the European session. But what is more likely, they will have to protect the nearest support at 1.0703. Strong macro results in the US may well push the euro to this level. The first buy signal will be made in case of a false breakout of this barrier. However, the uptrend may briefly stop today. Since bulls are unlikely to update the weekly highs, the correction may grow even deeper. If growth continues from the 1.0703 mark, the target will stand at the resistance level of 1.0745. An additional buy signal will be created after a breakout and a top-bottom retest of the barrier. A more distant target is seen at 1.0811. Given that the pair is now in the bullish trend, such a scenario should not be ruled out. In case of bearish EUR/USD and no bullish activity at 1.0703 during the North American session, pressure on the euro will significantly increase. The triggering of a row of stop orders will lead to a deeper bearish correction. If so, long positions could be considered after a false breakout at 1.0665. Long positions on EUR/USD could also be entered on a bounce off 1.0636, or even lower, off 1.0572, allowing a 30-35 pips correction intraday.
When to go short on EUR/USD:
With pressure on the euro increasing, the new target is seen at the support level of 1.0703. During the North American session, bulls may try to regain control over the 1.0745 mark. Therefore, a signal to sell the pair with the target at 1.0703 will be made only in case of a false breakout and strong macro results in the US. A corrective move will extend if the price breaks through the range and consolidates below it. If so, bulls' attempts to build a bigger upward correction will be unsuccessful, which will make a test of the 1.0665 low possible. Profit taking could be considered at this level. A more distant target stands at 1.0630. The uptrend will stop should the quote reach the level. In case of a bearish move during the North American session and no bullish activity at 1.0745, selling could be considered after a false breakout at 1.0784. Short positions on EUR/USD could also be opened on a bounce off 1.0815 or even higher, off 1.0844, allowing a 30-35 pips downward correction intraday.
Commitments of Traders:
The COT report for May 24 logged a further increase in long positions and a drop in short ones. Traders continue to buy the instrument, expecting aggressive moves by the ECB. Last week, the euro had strong growth potential amid a few hawkish statements. The ECB is anticipated to raise the interest rate in July, September, and December. Thus, the benchmark rate could be lifted to 0.25% by the end of the year. Some experts anticipate more aggressive measures from the ECB if inflation soars to 7.7% in May. The watchdog may hike the key rate in September and December to 0.5% from the current zero level. According to the COT report, the number of long non-commercial positions increased by 6,302 to 237,072 from 230,770. The number of short non-commercial positions declined by 12 289 to 198,142 from 210,431. Notably, the weaker euro is more attractive to traders. Last week, the total non-commercial net position grew to 38,930 against 20,339 a week earlier. The weekly closing price soared to 1.0734 against 1.0556.
Indicator signals:
Moving averages
Trading is carried out below the 30-day and 50-day moving averages, indicating a bearish correction.
Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
The lower band at 1.0732 stands as support. Resistance is seen at 1.0800 in line with the upper band.
Indicator description:
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
- Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
- Bollinger Bands. Period 20
- Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions are the total long position of non-commercial traders.
- Non-commercial short positions are the total short position of non-commercial traders.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
