Yesterday, several signals were formed to enter the market. Let's look at the 5-minute chart and figure out what happened there. In my morning forecast, I paid attention to the 1.0750 level and recommended making decisions on entering the market from it. The lack of statistics on the eurozone had an expected effect on market volatility. For this reason, the bears easily defended the resistance of 1.0750, which led to the formation of a false breakdown and a signal to sell the euro. As a result, the pair went down more than 45 points and rested on the support of 1.0711. A false breakdown at this level gave a signal to buy the euro, but I did not see a major upward movement. And what were the entry points for the pound?
To open long positions on EURUSD, you need:The pressure on the euro is gradually returning, as there is talk in the market that the May inflation in the United States will be far from the peak that many economists are counting on, which will force the Federal Reserve System to act further aggressively about monetary policy. A series of data on the eurozone is coming out this morning. I advise you to pay attention to the reports on the volume of production orders and the index of business activity in the construction sector from IHS Markit in Germany. Weak indicators may lead to a repeat test of 1.0673, where a false breakdown has already been formed during the Asian session. For this reason, I would not put much on this level in the first half of the day. The positive dynamics of the eurozone Sentix investor confidence index may keep the euro from a new sell-off, but it is unlikely to significantly affect the situation. If the pair falls, only the formation of a false breakdown at the level of 1.0673 forms a signal to open long positions in the hope of trying to regain the resistance of 1.0716, which the bulls missed yesterday afternoon. There are also moving averages playing on the side of the bears, which will limit the upward potential of the pair. A breakout and a top-down test of this range will deal a serious blow to sellers' stop orders, which will form a new signal to enter long positions, with the possibility of updating yesterday's maximum of 1.0750, where I recommend fixing the profits. Getting to a more distant target in the area of 1.0785 – the maximum of last month is unlikely to work without positive news that will return the demand for risky assets. If EUR/USD declines and there are no buyers at 1.0673, and this is a more realistic scenario, the pressure on the euro will increase. Demolition of buyers' stop orders below this level will push the pair to 1.0630, so the best option for opening long positions there will be a false breakdown. I advise buying EUR/USD immediately for a rebound only from the level of 1.0596, or even lower – around 1.0561 with the aim of an upward correction of 30-35 points within a day.To open short positions on EURUSD, you need:Sellers performed well at 1.0750 and regained control of the market – albeit not completely. Now we can talk about a breakthrough of 1.0673 and about building a new downward trend with the prospect of a return to 1.0630. Strong statistics on Germany can temporarily reduce the pressure on EUR/USD, so if the pair grows in the first half of the day, only the formation of a false breakdown at the level of 1.0716 forms a signal to open short positions with the prospect of returning to the support of 1.0673, around which trading is now underway. A breakdown and consolidation below this range, as well as a reverse test from the bottom up – all this will lead to an additional sell signal with the demolition of buyers' stop orders and a larger movement of the pair down to the 1.0630 area. A breakthrough and consolidation below 1.0630 may take place only in the afternoon, after the data on the US trade balance. In this case, the more distant target will be the 1.0596 area, where I recommend completely exiting sales. In the event of an upward movement of EUR/USD during the European session, as well as the absence of bears at 1.0716, the market will again return to the control of buyers, which will allow the building of a new lower boundary of the ascending channel. The best option will be short positions after the formation of a false breakdown in the area of 1.0750. You can sell EUR/USD immediately on a rebound from the monthly maximum of 1.0785, or even higher – around 1.0820 with the aim of a downward correction of 30-35 points.The COT report (Commitment of Traders) for May 24 recorded a further increase in long positions and a reduction in short ones. Traders continued to open long positions with the expectation of a more aggressive monetary policy on the part of the European Central Bank. Although there were slightly fewer comments last week that the regulator would start raising interest rates in the near future, this did not significantly limit the pair's upward potential. It is now expected that the ECB Governing Council will raise the deposit rate by a quarter-point in July this year, then in September, and once in December - bringing it to 0.25% by the end of the year. However, some experts are confident that the Central Bank will be forced to act more aggressively – everything depends on this week's inflation data for May of this year. It is expected to jump immediately to 7.7% per annum, which may increase pressure on politicians. It is also expected that the key interest rate will be raised in September and December to 0.5% from zero, at which it is currently. The COT report indicates that long non-commercial positions increased by 6,302 from the level of 230,770 to the level of 237,072, while short non-commercial positions decreased by -12,289 from the level of 210,431 to the level of 198,142. As I have repeatedly noted, the low exchange rate of the euro makes it more attractive for medium-term traders, and the change in the balance of power in favor of buyers confirms this. At the end of the week, the total non-commercial net position increased to 38,930 against 20,339 a week earlier. The weekly closing price jumped to 1.0734 against 1.0556.Signals: of indicatorsMoving AveragesTrading is below the 30 and 50-day moving averages, which indicates a likely decline in the euro in the short term.Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differ from the general definition of the classic daily moving averages on the daily chart D1.Bollinger BandsIn the case of a decline, the lower limit of the indicator around 1.0665 will act as support. In case of growth, the upper limit of the indicator in the area of 1.0730 will act as resistance.Description of indicators
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
- Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
- MACD indicator (Moving Average Convergence / Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-profit speculative traders, such as individual traders, hedge funds, and large institutions use the futures market for speculative purposes and to 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 the short and long positions of non-commercial traders.
