In the morning article, I highlighted the level of 1.0116 and recommended making decisions with this level in focus. Now let's look at the 5-minute chart and try to figure out what actually happened. As the economic calendar is empty today, the euro has been able to rise. However, the increase was too small and there were no entry points. The price broke through 1.0116. Yet, a downward test did not take place. The pair was lacking just 5 pips for a buy signal to appear. If it did happen, an upward movement could continue. The technical outlook has completely changed for the afternoon.
What is needed to open long positions on EUR/USD
The bulls are trying to push the pair above last's week high. If they succeed, the price is likely to rise further. However, be careful and don't fall into the trap in case of a false breakout. I would advise you not to close intraday positions below 1.0127. During the American session, there will be no economic reports that could have boosted the US dollar. However, the pair does not decline significantly following positive reports as well. The NAHB housing market index and the capital account are on tap today. If the pair moves down after the data, the buyers will have to defend the new support level of 1.0127, formed at the end of the first half of the day. Only after a false breakout, the pair may continue its growth and approach the nearest resistance level of 1.0182. A breakout and a downward test will lead to a drastic drop in the seller's stop-loss orders. As a result, a buy signal will appear with the prospect of a rise to 1.0226 at the very beginning of this week. However, it is too early to talk about the continuation of a more significant upward correction. Speculators are likely to close their long positions at 1.0226, which will limit the further upward movement of the pair. A more distant target will be the 1.0271 level where I recommend locking in profits. If EUR/USD edges lower and buyers show no activity at 1.0127 in the afternoon, the bears will take the upper hand. In this case, it is better to cancel long positions until a false breakout of 1.0082. The moving averages are passing in positive territory at this level. You can buy EUR/USD immediately at a bounce from the 1.0008 level or even a low of 0.9958, keeping in mind an upward intraday correction of 30-35 pips.
What is needed to open short positions on EUR/USD
Bears are now staying away from the market, which creates the illusion of an upward reversal. However, be careful to avoid traps set by major retail traders. Do not forget that recently more and more Fed officials have been hinting at a rate increase of 1.0% at once. If so, the US currency is sure to rise. In case of further growth in the afternoon after weak reports on the US economy, a false breakout of 1.0182 will generate an excellent sell signal with the prospect of a decline to the support level of 1.0127. This is a physiologically important level. A breakout and a dip below this level, as well as an upward test, will provide an additional sell signal. As a result, the buyers will have to close their stop-loss orders, pushing the price down to 1.0082. After that, it is likely to edge lower to 1.0045 where I recommend closing all short positions. A more distant target will be the 0.9958 level. If EUR/USD rises during the American session and bears show no energy at 1.0182, it is better to postpone short positions until a more attractive resistance level of 1.0226. Only a false breakout of this level may trigger a sell-off of the euro. You can open short positions after a bounce of 1.0271 or a high of 1.0341, keeping in mind a downward intraday correction of 30-35 pips.
COT
The COT report (Commitment of Traders) for July 5 logged an increase in long and short positions. However, short positions exceeded long ones by almost two times. It signals the strength of the bearish bias. It led to a bigger increase in the negative delta. Last week, market participants were disappointed by the eurozone retail sales report. After studying the Nonfarm Payrolls report, the Fed is likely to maintain an aggressive monetary policy to cap galloping inflation. The President of the European Central Bank, Christine Lagarde, also spoke about the need to start raising the interest rate to curb inflation. The United States will reveal CPI data on Wednesday. Analysts expect another jump in consumer prices. If this scenario comes true, the US dollar may climb higher against the euro, approaching parity. The COT report revealed that the number of long non-profit positions increased by 7,724 to the level of 197,138, while the number of short non-profit positions climbed by 13,980 to the level of 213,990. The US dollar is approaching new highs amid the low exchange rate of the euro, the need for further aggressive tightening by major central banks, and the recession in many developed countries. At the end of the week, the total non-commercial net position remained negative and amounted to -16,852 against -10,596. The weekly closing price dropped to 1.0316 against 1.0584.
Signals of technical indicators
Moving averages
EUR/USD is trading above 30- and 50-period moving averages, which indicates the continuation of an upward movement.
Remark. The author is analyzing the period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.
Bollinger Bands
In case of a decline, the level of 1.0099 will act as support.
Definitions of technical indicators
- Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
- Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
- MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
- Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
- Non-commercial traders - speculators such as retail traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Non-commercial long positions represent the total long open position of non-commercial traders.
- Non-commercial short positions represent the total short open position of non-commercial traders.
- The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.
