In the morning article, I highlighted the level of 1.0211 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. A breakout of 1.0211 occurred without a downward test. This is why I did not open long positions. After a rise to 1.0238, the bulls ran out of steam. The bears immediately returned to the market. As a result, a false breakout took place. There was a sell signal, which brought about 20 pips of profit. In the afternoon, the technical outlook changed.
What is needed to open long positions on EUR/USD
As long as trading is carried out above 1.0216, the level formed in the first half of the day, the euro is likely to recover. If this scenario comes true, a breakout of the nearest resistance level of 1.0247 may occur. In the afternoon, the NFIB Small Business Optimism Index, the Nondurable Manufacturing Sector Productivity and Labor costs report are on tap. These figures will hardly affect the pair. However, they may help the US dollar assert strength. If the pair drops in the afternoon, only a false breakout of 1.0216 will give a buy signal. The price has already bounced off this level today. After that, it may touch the resistance level of 1.0247. A breakout and a downward test of this level will force the bears to close their Stop-Loss orders, giving an additional buy signal. If so, the pair may well grow to 1.0275. The distant target level is the July high of 1.0292. Yet, the price is unlikely to rise above this level today. If EUR/USD slides and the bulls show no activity at 1.0216, the pressure on the pair will escalate, pushing it down to 1.0190. It would be wise to open long positions from this level after a false breakout. You can EUR/USD immediately at a bounce from 1.0161 or a low of 1.0124, keeping in mind an upward intraday correction of 30-35 pips.
What is needed to open short positions on EUR/USD
The euro/dollar pair managed to snap its losing streak that started on Friday. It signals market equilibrium. The bears were able to defend the 1.0247 level. They should protect this level in the afternoon. Another false breakout of 1.0247, which acts as the upper boundary of the 1.0161-1.0247 sideways channel, will provide an excellent sell signal. If so, the pair may decrease to 1.0216. A breakout of this level and an upward test will give an additional sell signal. The bulls will have to close their Stop-Loss orders. The pair is likely to drop to 1.0190. If this scenario is correct, the price is expected to hit 1.0161 where I recommend closing all short positions. A more distant target will be the 1.0124 level. However, it will be able to reach this level only tomorrow if US inflation data is negative. If EUR/USD climbs during the US session and bears show no energy at 1.0247, it will signal the end of the bear market. It is better to postpone short positions to 1.0275. A false breakout of this level will generate a new sell signal. You can sell EUR/USD immediately at a bounce from 1.0292 or a high of 1.0323, keeping in mind a downward intraday correction of 30-35 pips.
COT report
The COT report (Commitment of Traders) for August 2 logged a sharp drop in both short and long positions. However, there was a bigger decline in the number of short positions. It signals the gradual end of the bear market and an attempt to find the bottom after reaching the parity level. Last week, the economic calendar for the eurozone was uneventful. The US, on the contrary, unveiled many economic reports. The Nonfarm Payrolls report was quite positive. The strong labor market has once again shown the resilience of the US economy despite high inflation, recession risks, and aggressive rate hikes. A drop in long and short positions may be associated with a seasonal factor. In August, the market activity could become even lower. It is hardly surprising. The US will soon publish its inflation report. Traders will find out whether aggressive monetary tightening has helped the economy or not. If inflation starts to decline, it will be appropriate to open long positions on risky assets. The COT report revealed that the number of long non-commercial positions decreased by 6,349 to 191,692, while the number of short non-commercial positions contracted by 9,122 to 230,503. At the end of the week, the total non-commercial net position, although it remained negative, rose slightly to -39,811 from -41,584, which indicates the continuation of the bull market. The weekly closing price grew to 1.0206 against 1.0161.
Signals of technical indicators
Moving averages
EUR/USD is trading above 30- and 50-period moving averages. It means that the bulls are holding the upper hand. Remark. The author is analyzing a 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 lower border of 1.0175 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.
