Yesterday was one of those days where all the signals worked out in a good positive direction, and there were a lot of them. Let's take a look at the 5-minute chart and figure out what happened. I paid attention to the 0.9973 level and the 1.0014 level in my morning forecast and advised making decisions on entering the market. The bulls protecting support at 0.9973 resulted in an excellent signal to buy the euro in the morning, which resulted in an increase of more than 40 points to the 1.0014 area. I expected bears to be active. A false breakout at this level led to a short signal, which resulted in the pair falling back to 0.9973 after the US inflation data, allowing another 40 points of profit to be taken. A false breakout at 0.9973 in the afternoon, by analogy with the morning entry point, also gave a signal to buy, after which the euro moved up by 30 points.
When to go long on EUR/USD:
Producer prices in the US coincided with economists' forecasts, which allowed the market to remain balanced. However, trading below parity still indicates the bears' advantage, so the pressure on the pair can return at any moment - especially if the statistics for the euro area disappoint again, and as we know, there is nothing much to rejoice there. Expected data on the consumer price index in Italy and the balance of foreign trade in the eurozone. The speech by European Central Bank Vice-President Luis de Guindos will deal with the future of the euro area's monetary policy, which is clearly defined due to high inflation in the region. This may provide some support for the euro, similar to yesterday. In case the pair is under pressure again, it is best not to rush. The optimal buying scenario would be a false breakout near the new support at 0.9957, as the bulls failed to beat the parity yesterday. This will provide an entry point for an upward correction with immediate recovery target towards 0.9996. As I noted above, the statements of the ECB representatives can help the euro if it continues to aggressively raise interest rates. A breakthrough and a downward test of 0.9996 will hit the bears' stop orders, which creates another signal to open long positions with the possibility of a surge up to the 1.0038 area, just below which there are moving averages playing on the bears' side. A more distant target will be resistance at 1.0079, where I recommend taking profits.
If the EUR/USD falls and there are no bulls at 0.9957, the pressure on the pair will increase. The optimal decision to open long positions in such conditions would be a false breakout near the low of 0.9922. I advise you to buy EUR/USD immediately on a rebound only from 0.9880, or even lower - in the area of 0.9849, counting on an upward correction of 30-35 points within the day.
When to go short on EUR/USD:
The bears managed to give an excellent rebuff to the bulls yesterday and retained control over the market. As long as the trade is below parity, the euro has every chance of a new wave of decline. The bears' main task for today is to protect the nearest resistance in the parity area of 0.9996, the test of which may occur in case of good statistics on the euro area. I expect large players to appear in the market from 0.9996. Together with a false breakout at this level, short positions will be opened in order to further move the euro down to 0.9957. 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 fall of the pair to the 0.9922 area. I recommend taking profit there. A more distant target will be a low of 0.9880, but this is in case the bulls lose all interest in the euro after good statistics on retail sales in the US in the afternoon.
In case EUR/USD jumps during the European session, and the bears are not active at 0.9996, an upward correction will lead to the next resistance at 1.0038, just below which there are moving averages playing on the bears' side. In this scenario, I recommend opening short positions from 1.0041 only if a false breakout is formed. You can sell EUR/USD immediately for a rebound from the high of 1.0079, or even higher - from 1.0118, counting on a downward correction of 30-35 points.
COT report:
The Commitment of Traders (COT report) on September 6 logged a decline in short positions and a sharp increase in long positions. Considering that all this was ahead of the European Central Bank meeting, at which the central bank raised interest rates by 0.75% at once, such changes are not surprising. With an ever smaller gap in interest rates between the Federal Reserve and the ECB, the demand for the euro will gradually return, but you need to understand how difficult the European economy is now and how difficult it will be for this winter period - especially with such high energy prices due to the deficit. In the US, the Fed also plans to raise interest rates by 0.75% as early as next week, but quite a lot will depend on what inflation data comes out. If the growth rate of consumer prices remains at a high level, the central bank will not hesitate for a long time. The COT report indicated that long non-commercial positions rose by 3,019 to 205,277, while short non-commercial positions decreased by 8,308 to 241,626. As of the end of the week, the overall non-commercial net position remained negative, but rose slightly to - 36,349 against -487,676, which indicates the first prerequisites for building an upward correction for the pair and finding the bottom. The weekly closing price decreased and amounted to 0.9917 against 1.0033.
Indicator signals:
Moving averages
Trading is below the 30 and 50-day moving averages, indicating a return to the bears' market.
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 0.9957 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.
