Several interesting market entry signals were formed yesterday. I suggest you take a look at the 5-minute chart and figure out what happened. In my morning forecast, I reversed the growth and a false breakout formed at this level led to an excellent entry point for short positions. However, despite the weak fundamental statistics and the continuation of the bear market, the pair recovered, which resulted in consolidating losses. A breakthrough and reverse test of 0.9909 gave a signal to buy, which led to the pair's growth by more than 40 points. The bears showed themselves around 0.9934 in the afternoon, forming a false breakout there and a sell signal. As a result, the pair fell by 20 points and that was it.
COT report:
Before talking about the further prospects of the EUR/USD movement, let's look at what happened in the futures market and how the positions of the Commitment of Traders have changed. The Commitment of Traders (COT report) for August 30 logged a decline in both short and long positions. If a week ago there was a surge in activity, now there has been a similar decline. This indicates a decrease in investor appetite for risk after the release of the eurozone inflation data, which once again rose to a high in the last ten years. The problem is exacerbated by the energy crisis, as the flow of gas through the Nord Stream is practically suspended - this is another increase in energy prices in the winter and upward inflation surges, which will force the European Central Bank to further raise interest rates and tighten belts. This week we are also waiting for the central bank's decision on interest rates, which may aggravate the euro's position against the US dollar. Even though the rate hike will be considered by investors as a signal for the growth of profitability, at the same time there will be a slowdown in economic growth, which is more important. So don't expect a serious euro recovery in the medium term. The COT report indicated that long non-commercial positions decreased by 8,567 to 202,258, while short non-commercial positions decreased by 5,000 to 249,934. At the end of the week, the total non-commercial net position remained negative and decreased to the level of -47,676 against -44,109, which indicates continued pressure on the euro and further fall of the trading instrument. The weekly closing price slightly recovered and amounted to 1.0033 against 0.9978.
When to go long on EUR/USD:
Today we do not have serious statistics in the first half of the day and people could only pay attention to the report on the volume of industrial orders in Germany and the index of business activity in the construction sector from IHS Markit. Both indicators may fall, but I do not expect serious pressure on the euro, as traders even ignored yesterday's weak data on the services sector. It looks like everyone is "charged" for the ECB meeting, which will be held this Thursday, so the demand for the euro in the short term will remain. In case of bad reports and a negative reaction, forming a false breakout in the area of the nearest support at 0.9941 will be a reason to open long positions. In this case, it will be possible to count on building a correction and updating the resistance at 0.9984. A breakthrough and test of this range would make it possible to get out of the bearish pressure, which will hit the stops, creating another signal for entry into long positions with the possibility of a larger move up to 1.0039. The farthest target will be the area of 1.0076, where I recommend taking profits.
If the EUR/USD declines and there are no bulls at 0.9941, and moving averages are also passing there, playing on the bulls' side, the pressure on the pair will increase. This will bring up the 0.9910 update. From this level, I recommend buying also only on a false breakout. I advise you to open long positions on EUR/USD immediately for a rebound only from the annual low of 0.9879, or even lower - in the area of 0.9819, counting on an upward correction of 30-35 points within the day.
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When to go short on EUR/USD:
Bears received a significant rebuff yesterday and failed to offer anything even amid negative fundamental statistics. The reason for this may be the ECB's upcoming meeting, at which it is still not clear how much the central bank will raise interest rates: by 0.5% or 0.75%. A good option for selling would be a false breakout in the area of the nearest resistance at 0.9984, growth to which may occur after the release of a number of good fundamental statistics on Germany. All this will lead to the movement of the euro down to the area of 0.9941. A breakdown and consolidation below this range, as well as a reverse test from the bottom up, create another sell signal with the removal of bulls' stop orders and the resumption of the bearish trend with the prospect of updating 0.9910. Consolidating below this area is a direct road to the annual low of 0.9879, where I recommend completely leaving short positions. A more distant target will be the area of 0.9819.
If EUR/USD moves higher during the European session, and there are no bears at 0.9984, we can expect a bigger push for the pair, as bulls retain control of the market. Then I advise you to postpone shorts until 1.0029. Forming a false breakout there will be a new starting point for entering short positions. 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.
Indicator signals:
Moving averages
Trading is conducted above 30 and 50 moving averages, which indicates a slight advantage of the bulls.
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
A breakthrough of the lower border of the indicator in the area of 0.9910 will lead to a fall in the euro. Surpassing the upper limit of the indicator in the area of 0.9970 will lead to the growth of the euro.
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.
