Yesterday, traders received several good signals to enter the market. Let us take a look at the 5-minute chart to figure out what happened. Earlier, I asked you to pay attention to the level of 1.0020 to decide when to enter the market. The euro continued its upward correction despite weak data on the eurozone consumer confidence. A breakout and a downward test of 1.0020 led to a perfect buy signal, which allowed the pair to jump by more than 35 pips. Just after the price hit the resistance level of 1.0050, bears gained control over this level and pushed the price lower by 20 pips. In the second part of the day, bulls showed activity near 1.0014 and formed a buy signal. As a result, the pair increased by 25 pips.
Conditions for opening long positions on EUR/USD:
Buyers of the US dollar tried to regain control over the market amid strong data from the US. However, big traders prevented them from pushing the price below the parity level. As a result, the currency was trading above the parity level of 1.0000. That is why bulls had a chance to continue the upward correction. Today, in the first part of the day, Germany may disclose disappointing data on its labor market. This may negatively affect the euro. What is more, the eurozone inflation data may also discourage traders. According to the forecast, consumer prices increased in August. If the euro declines, it will be wise to go long after a false breakout of 1.0016. Traders may receive a perfect buy signal, which will support the upward correction, thus allowing the pair to recoup all the losses. The nearest target is located at 1.0053. A breakout and a downward test of this level may encourage traders to buy above the parity level, thus affecting bears' stop orders. Against the backdrop, the pair may jump to 1.0088. The next target is located at 1.0127, where it is recommended to lock in profits. If the euro/dollar pair declines and buyers fail to protect 1.0016, pressure on the pair will return. In this case, it will be better to go long after a false breakout of the low of 0.9985. Traders may also buy the asset just after a bounce off 0.9941 or even lower – from 0.9905, expecting an upward correction of 30-35 pips.
Conditions for opening short positions on EUR/USD:
Today, sellers should primarily protect the resistance level of 1.0553 and regain control over the parity level. Yesterday, they failed to do so even amid very strong data on the US consumer sentiment index, which soared above 100 points. In the first part of the day, it will be better to go short after a false breakout of 1.0053, which may spur a decline to 1.0016. Notably, yesterday, the price tested this level several times. That is why a new test will hardly provide any signal. In light of this, a breakout and settlement below the area as well as an upward test will give an additional sell signal, which may lead to a drop to 0.9985 or even to 0.9941, where it is recommended to lock in profits. The next target is this year's low of 0.9905. If the euro/dollar pair surges during the European session and bears fail to protect 1.0053, the euro may jump even higher, thus altering the market sentiment. In this case, it will be better to avoid short positions until the price hits 1.0088. Traders may go short just after a rebound from the high of 1.0127 or higher – from 1.0155, expecting a decline of 30-35 pips.
COT report
According to the COT report from August 23, the number of both long and short positions soared. This fact points to great interest among traders, especially after the euro dropped below the parity level. Fed Chair Jerome Powell's speech in Jackson Hole led to a surge in volatility and provided short-lived support for the US dollar. However, big traders prevent the pair from falling below the parity level and become more active every time it starts losing value. Jerome Powell said that the Fed would do its best to cap inflation. That is why the regulator is likely to keep the current pace of monetary policy tightening. Since traders priced in such an outcome before the symposium, the euro managed to stay intact. This week, traders should analyze the US labor market data that has a considerable influence on the Fed's plans. Thus, a strong labor market may contribute to high inflation, thus forcing the Fed to raise the benchmark rate even more. The COT report reads that the number of long non-commercial positions increased by 11,599 to 210,825, whereas the number of short non-commercial positions jumped by 12,924 to 254,934. At the end of the week, the total non-commercial net position remained negative and decreased to -44,109 against -42,784, which reflects pressure on the euro and a further fall in the trading instrument. The weekly closing price decreased to 0.9978 from 1.0191.
Signals of indicators:
Moving Averages
Trading is performed above 30- and 50-day moving averages, thus pointing to bulls' attempt to prolong the upward movement.
Note: The period and prices of moving averages are considered by the author on the one-hour chart, which differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
A breakout of the lower limit of the indicator located at 0.9972 will lead to a decrease in the euro. A breakout of the upper limit located at 1.0020 may spur a rise. If the pair declines, the support level will be located at the lower limit of the indicator near 1.0000. In case of a rise, the upper limit of the indicator located at 1.0040 will act as resistance.
Description of indicators- Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
- MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
- Bollinger Bands. The period is 20.
- Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions are the total number of long positions opened by non-commercial traders.
- Short non-commercial positions are the total number of short positions opened by non-commercial traders.
- The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.
