Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to 1.0603 in my morning forecast and advised you to make decisions on entering the market from it. Another attempt to rise above 1.0603 failed. Despite the statements of European Central Bank President Christine Lagarde, her concerns about inflation and the situation on the bond market, euro bulls still failed to break through above 1.0603. All this resulted in forming a false breakout and a signal to open short positions. As a result, the downward movement amounted to more than 50 points. Toward the middle of the day, the bulls tried to protect 1.0552 and even formed a false breakout there with an entry point into long positions, but all this only led to taking losses. Surpassing 1.0552 occurred without a reverse test from the bottom up, so I did not manage to additionally enter short positions.
When to go long on EUR/USD:
Yesterday, Lagarde outlined a clear position of the central bank, but this had no effect on euro bulls. Obviously, the leadership of the ECB is afraid of the high debt burden of a number of European countries, especially Italy and Spain, since the increase in interest rates, which will occur from day to day, will lead to an increase in the burden of servicing public debt. Today, there are a lot of statistics on the eurozone, but all of them are of little interest to traders, since they are unlikely to affect the direction of the EUR/USD pair. I advise you to pay attention only to the report on the eurozone consumer confidence index, as well as on the German consumer price index. Inflationary pressures are expected to ease in the eurozone's largest economy, but this is unlikely to change the ECB's plans to raise interest rates.
The optimal scenario for opening long positions today would be a false breakout forming in the area of the nearest support at 1.0497. Only this creates a signal to enter the market, counting on an attempt to regain the middle of the horizontal channel at 1.0552, which the bulls missed yesterday. Moving averages also pass there, which will also limit the pair's upward potential. Only a breakthrough and test of 1.0552 will hit the bears' stop orders, which will allow a return to the upper border of the horizontal channel at 1.0603. We can only talk about building a new upward trend after a breakthrough of 1.0603, which will open up the possibility of updating 1.0640 and 1.0663. A more distant target will be the area of 1.0687, where I recommend taking profits.
If the EUR/USD falls and there are no bulls at 1.0497, things will become very bad for them. In this case, I advise you not to rush to enter the market: the best option for opening long positions would be a false breakout in the support area of 1.0448. I advise you to buy EUR/USD immediately on a rebound only from the level of 1.0388, or even lower - in the region of 1.0321 with the goal of an upward correction of 30-35 points within the day.
When to go short on EUR/USD:
The bears still have chances for the realization of the downward trend, and the advantage is now on their side. Weak statistics on the euro area may put even more pressure on the pair, which will lead to its exit from the horizontal channel and further fall to the area of annual lows. If the euro rises in the first half of the day in case we receive strong data on the eurozone and Germany, forming a false breakout at 1.0552 creates a signal to open short positions with the prospect of returning to the lower border of the horizontal channel at 1.0497. A breakthrough and consolidation below this range, as well as a reverse test from the bottom up - all this will create another sell signal with the removal of bulls' stops and a larger movement of the pair down to the 1.0448 area. A breakthrough and reverse test of 1.0448 from the bottom up will be evidence of the resumption of the bearish trend with the prospect of a quick decline to 1.0388, where I recommend completely exiting short positions. A more distant target will be the area of 1.0321.
If EUR/USD moves up during the European session, as well as the absence of bears at 1.0552, then the bulls will regain control of the situation. In this scenario, I advise you to postpone short positions to a more attractive level of 1.0603. Forming a false breakout there will be a new starting point for a downward correction of the pair. You can sell EUR/USD immediately on a rebound from the high of 1.0640, or even higher - in the area of 1.0663 with the goal of a downward correction of 30-35 points.
COT report:
According to the COT report from June 21, the number of both long and short positions slumped, pointing to the bearish sentiment. In his recent speech, Federal Reserve Chairman Jerome Powell confirmed the central bank's intention to raise the benchmark rate even more to combat the highest inflation in the last 40 years. The European Central Bank is also planning to start hiking the key interest rate as early as next month. This is likely to cap the greenback's upward potential against the euro. Since risk assets are significantly oversold, the euro may start recovering just after the beginning of monetary policy tightening. The COT report unveiled that the number of long-commercial positions dropped by 11,432 to 195,554, while the number of short non-commercial positions declined by 1,845 to 211,159. A low price of the euro is making it attractive for buyers. However, traders may switch to the US dollar at any moment amid high inflation and the necessity of a more aggressive policy of central banks. Last week's results showed that the total non-commercial net position remained negative and decreased from -6,018 to -15,605. The weekly closing price rose from 1.0481 to 1.0598.
Indicator signals:
Moving averages
Trading is below the 30 and 50-day moving averages, which indicates the bears' attempt to assert themselves.
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 case of a decline, the lower border of the indicator around 1.0497 will act as support. In case of growth, the upper border of the indicator in the area of 1.0560 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.
