Yesterday, the euro plunged quite significantly, as a result of which several signals were formed to enter the market. Let's take a look at the 5-minute chart and see what happened. A breakthrough and reverse test of 1.0030 from top to bottom led to an excellent entry point for buying the euro in continuation of the bullish scenario, but data on activity in the manufacturing sector of the eurozone countries let us down. As a result, we had to consolidate losses, because after a slight upward jump by 10 points, the pair was under pressure again. It was possible to catch a signal to enter the market in the afternoon after a major sell-off of the euro, which occurred after the release of good statistics on activity in the US manufacturing sector, which, despite the increase in interest rates, continues to show steady growth. A false breakout at 0.9923 gave a buy signal, which could take about 30 points of profit from the market.
When to go long on EUR/USD:
This morning there is nothing that could lead to a surge in volatility, and most likely the focus will be on the US labor market. The data on the German foreign trade balance and the eurozone producer price index are unlikely to help euro bulls, but in this case it is better that they do not harm them. Of course, the best scenario for buying the euro would be long positions in the new support area of 0.9949, to which the pair may return in case of very disappointing performance in the euro area. Forming a false breakout at the level of 0.9949, which was formed at the end of yesterday, will provide an excellent entry point in anticipation of forming an upward correction with the nearest target of 0.9993, from which one step to the parity controlled by euro bears now. A breakthrough and test to the downside of this range would hit bearish stops and provide an incentive to buy above parity, opening the possibility of a correction to the 1.0034 area, where bears were especially active yesterday. A more distant target will be the resistance at 1.0076, which is the upper boundary of a wider horizontal channel, where I recommend taking profits.
If the EUR/USD declines and there are no bulls at 0.9949, then the pair will be under pressure again, as the lower limit of the ascending correctional channel will be broken and the bearish trend will resume. The optimal decision to open long positions in this case would be a false breakout near the low of 0.9905. I advise you to buy EUR/USD immediately on a rebound only from 0.9861, or even lower - around the parity of 0.9831, counting on an upward correction of 30-35 points within the day.
When to go short on EUR/USD:
The bears' main task is to protect parity and resistance, which is located a little lower in the 0.9993 area. There are moving averages, while playing on their side. A false breakout at this level after receiving disappointing data on Germany and the eurozone can push the euro down to the 0.9949 area, where, as I said, the lower limit of the upward correctional channel from August 23 passes, which plays a very important role in determining the pair's succeeding direction. Therefore, a breakdown and consolidation below this range with a reverse test from the bottom up creates another sell signal with the removal of bulls' stop orders and a larger drop to the 0.9905 area, where the stop will be temporary. From there, a new annual low of 0.9861 is within easy reach, where I recommend taking profits. A more distant target will be the year's low at 0.9831.
If EUR/USD jumps during the European session if we receive strong data, as well as the absence of bears at 0.9993, the situation will not change dramatically, as everyone will be waiting for the release of statistics on the US labor market. It can determine the further short-term direction of the trading instrument. In this case, I advise you to postpone short positions until 1.0034, but only if a false breakout is formed there. You can sell EUR/USD immediately for a rebound from the high of 1.0076, or even higher - from 1.0127, counting on a downward correction of 30-35 points.
COT report:
The Commitment of Traders (COT) report for August 23 logged a sharp growth in both short and long positions. This indicates a rather high appetite of traders, especially after the update of the euro's parity against the US dollar. Although Federal Reserve Chairman Jerome Powell's speech at Jackson Hole led to a surge in volatility and provided temporary support to the dollar, it is obvious that major players do not want to let the pair go below parity, and each time they become more active on a decline. Powell said that the Fed will continue to fight inflation with all its might and noted the likely continuation of the previous pace of raising interest rates during the September meeting. But the markets were already betting on such changes, and this did not lead to the euro's collapse against the dollar. This week it is necessary to analyze the data on the US labor market, which seriously affects the Fed's plans. A strong labor market will keep inflation high, which will force the central bank to raise interest rates further. The COT report indicated that long non-commercial positions rose by 11,599 to 210,825, while short non-commercial positions jumped by 12,924 to 254,934. At the end of the week, the overall non-commercial net position remained negative and fell to -44,109 against -42,784, which indicates that pressure on the euro remains and further fall of the trading instrument. The weekly closing price decreased and amounted to 0.9978 against 1.0191.
Indicator signals:
Moving averages
Trading is below the 30 and 50-day moving averages, which indicates a possible further fall in the pair.
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 0.9915 will act as support. In case of growth, the upper border of the indicator in the area of 1.0005 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.
