Yesterday, traders received several signals to enter the market. Let us take a look at the 5-minute chart to clear up the situation. Earlier, I asked you to pay attention to the levels of 1.0621 and 1.0659 to decide when to enter the market. A breakout and a downward test of 1.0621 after positive data from Germany led to a perfect buy signal with the target at 1.0659. A false breakout of this level spurred a sell signal. As a result, the pair dropped by 30 pips. In the second part of the day, after the pair showed a rapid decline, we saw a false breakout of 1.0581, which formed a perfect buy signal within a sideways channel. This is how the pair climbed by more than 40 pips.
Conditions for opening long positions on EUR/USD:
First, let us take a look at the futures market and the COT report. According to the COT report from December 13, the number of both long and short positions dropped. Most traders decided to lock in profits before the meetings of the global central banks, which were held last week. This, in turn, led to a decline in the volume of positions. It is obvious that the hawkish policy chosen by the Fed and the ECB will continue to affect the growth of risk assets. The fact is that the intention of the central banks to combat inflation may lead to a recession in both the US and Europe. The COT report unveiled that the number of long non-commercial positions decreased by 8,648 to 236,415, whereas the number of short non-commercial positions dropped by 8,480 to 111, 700. At the end of the week, the total non-commercial net position became slightly smaller and amounted to 122,247 against 123,113. This indicates that investors remain balanced. Although they avoid buying the euro at the moment, they are not in a hurry to sell risky assets even at the current prices. A new fundamental reason is needed for further growth in the euro. The weekly closing price rose to 1.0342 from 1.0315.
Trading is performed within the sideways channel. Today, sellers of the euro are likely to become active, intending to break the lower limit of the range. Notably, bullish sentiment is still in force. Today, we may see almost the same situation as yesterday. The only difference is that the euro will decline in the first part of the day and rise in the second one. Today, traders will pay attention only to Germany's producer price index report. If the indicator drops, the euro will face serious pressure. If the market reaction is negative, buyers should do their best not to lose the lower limit of the range located at 1.0581. Only a false breakout of this level will give a buy signal with the target above the nearest resistance level of 1.0621. It is the middle of the sideways channel where there are bearish MAs. A breakout and a downward test of this area amid positive data from the eurozone will allow the pair to climb to the high of 1.0659. In the event of this, the pair may rise to 1.0703. The farthest target is located at 1.0741. If the pair touches this level, the bullish trend is likely to continue. There, traders should lock in profits. If the euro/dollar pair declines and buyers fail to protect 1.058, they will lose control over the situation. Only a false breakout of the next support level of 1.0540 will give a reason to buy the euro. Traders may also go long after a bounce off the support level of 1.0495 or even lower – from the low of 1.0445, expecting a rise of 30-35 pips within the day.
Conditions for opening short positions on EUR/USD:
As I have already mentioned, the pair is trading sideways and now sellers intend to gain control over the lower limit of 1.0581. However, traders should also protect 1.0621. The price may test this level in case of strong fundamental data from Germany on producer prices. This will boost the appetite for risk assets as early as the first part of the day. It will be wise to sell after a false breakout of this level, which will lead to a decline to 1.0581. A breakout and settlement below this range as well as an upward test will give an additional short signal, which will affect buyers' stop orders. In this case, the pair will leave the sideways channel and decrease to 1.0540, where it is recommended to lock in profits. The pair may slide deeper only amid strong data from the US on the real estate market. The target will be located at 1.0495. If the euro/dollar pair increases during the European session and bears fail to protect 1.0621, bulls will regain control over the market. In the event of this, traders should avoid sell orders until the price hits 1.0659, the upper limit of the range. A false breakout of this level will give a short signal. Traders may also go short just after a rebound from the high of 1.0703 or even higher – from 1.0741, expecting a decline of 30-35 pips.
Signals of indicators:
Moving Averages
Trading is performed below 30- and 50-day moving averages, which still points to a decline in the euro.
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
If the pair advances, a resistance level could be seen at 1.0621, the upper limit of the indicator. In case of a decline, the lower limit of the indicator located at 1.0581 will act as support.
Description of indicators
- Moving average (a 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 (a 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.
