Several interesting market entry signals were formed yesterday, which made it possible to make good money. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 0.9982 level in my morning forecast and advised making decisions on entering the market from it. The euro slipped a bit against the US dollar in the morning, which was an excellent reason to increase long positions in continuation of the bull market, the development of which I expect after the announcement of the European Central Bank's decision on interest rates. A false breakout at 0.9982 resulted in a buy signal that saw the pair rise over 40 points. The euro fell after the ECB announced its decision on rates, which resulted in forming a buy signal in the support area of 0.9949. As a result, the pair recovered more than 30 points.
When to go long on EUR/USD:
Yesterday, the European Central Bank raised interest rates by 0.75% at once, which was the sharpest policy tightening in recent memory. More importantly, then ECB President Christine Lagarde announced another similar policy change in October of this year, which returned the demand for the euro and allowed it to gain a foothold above parity against the US dollar. No important statistics are planned for this morning: only a report on the change in French industrial production will be released, and Lagarde will speak, which is unlikely to concern monetary policy, since everything was said yesterday. There will also be an EU economic summit and a meeting of the Eurogroup and the Council of EU Finance Ministers. If we are talking about compensation for energy costs and support for the population in the winter, the euro may react with growth. Of course, in the current conditions after a major Asian growth, the best scenario for long positions would be a false breakout in the new support area of 1.0040, formed on the basis of today's Asian session. This will provide an excellent entry point in view of the continuation of the upward correction with the nearest target at 1.0094. Good news from the meeting of European politicians, as well as a breakthrough and a downward test of this range will hit the bears' stop orders, which will form another signal to open longs with the possibility of a correction to the 1.0137 area. A more distant target will be resistance at 1.0184, where I recommend taking profits.
If the EUR/USD declines and bulls are not active at 1.0040, the pair will be under pressure again, but there is no need to panic. The optimal solution for opening longs in this case would be a false breakout near the low of 1.0011, where the moving averages are, playing on the bulls' side. I advise you to buy EUR/USD immediately on a rebound only from 0.9982, or even lower - in the area of 0.9949, counting on an upward correction of 30-35 points within the day.
When to go short on EUR/USD:
Bears no longer control the market, especially after yesterday's events. The bears' main task for today is to protect the nearest resistance at 1.0094, as having lost control of this area as well, the pressure on the euro may weaken even more. A false breakout at this level after the release of the eurozone data and Lagarde's speech will result in a sell signal with the goal of moving the euro back down to 1.0040. 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 in the pair to the 1.0011 area, where the moving averages are. I recommend taking profit there. A more distant target will be a low of 0.9982, where, in my opinion, big players should enter the market.
In case EUR/USD jumps during the European session, as well as the absence of bears at 1.0094, the situation will continue to change in the bulls' direction. In this scenario, I recommend postponing short positions to 1.0137, but only if a false breakout is formed there. You can sell EUR/USD immediately for a rebound from the high of 1.0184, or even higher - from 1.0221, counting on a downward correction of 30-35 points.
COT report:
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.
Indicator signals:
Moving averages
Trading is conducted above the 30 and 50-day moving averages, which indicates an upward correction 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 0.9949 will act as support. In case of growth, the upper border of the indicator in the area of 1.0094 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.
