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 level of 1.0621 to decide when to enter the market. A decline and a false breakout of 1.0621 led to a buy signal, which allowed the pair to climb by 15 pips. After a breakout and settlement below 1.0621, traders got a sell signal. As a result, the pair dropped by 15 pips. After that, pressure on the pair weakened. There were no other entry points.
Conditions for opening long positions on EUR/USD:
Today, the eurozone will not publish any macroeconomic report. There is no wonder that bulls may try to go above the upper limit of the sideways channel, where the pair has been trading for almost all the week. The best scenario presupposes a decline in the euro and a false breakout in the middle of the channel located at 1.0618. This will give an entry point, thus allowing bulls to reach the upper limit of 1.0659, which is capping the pair's upward potential. A breakout and a downward test of this area will give an additional buy signal with the target at the high of 1.0703. If the pair tests this level, we may see a new upward trend at the end of the year. A breakout and a downward test of 1.0703 will affect bears' stop orders and give an additional buy signal with the target at 1.0741, where it is recommended to lock in profits. If the euro/dollar pair declines and buyers fail to protect 1.0618, pressure on the pair will rise, but nothing special will happen. The pair may just slide to 1.0581. A breakout of 1.0581 may push the price to the next support level of 1.0540, which will overshadow all bullish gains in December. There, traders may go long only after a false breakout. It is also possible to open buy orders just after a bounce off 1.0495 or even lower – from 1.0446, expecting a rise of 30-35 pips within the day.
Conditions for opening short positions on EUR/USD:
Sellers are likely to become more active, especially near the resistance level of 1.0659. They are better to keep control over this level. The absence of data from the eurozone is likely to cap the pair's upward potential since there is no reason to break 1.0659. Thus, it will be wise to open sell orders after a false breakout of the resistance level of 1.0659. This will push the price to the support level of 1.0618, where there are buyers' MAs. A breakout and a test of this level will put the euro under pressure again, thus forming an additional sell signal with the target at 1.0581. If the price settles below this level, the pair may slide to 1.0540. This will provide hope for a bearish market at the end of the year. The farthest target is located at 1.04958, where it is recommended to lock in profits. If the euro/dollar pair increases during the European session and bears fail to protect 1.0659, the price may jump to 1.0703, a strong resistance level, formed after the FOMC meeting. There, traders may go short after an unsuccessful settlement. It is also possible to sell the asset just after a rebound from the high of 1.0741, expecting a drop of 30-35 pips.
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.
Signals of indicators:
Moving Averages
Trading is performed slightly above 30- and 50-day moving averages, which still points to bulls' attempts to continue the rise.
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 1.0640, the upper limit of the indicator. In case of a decline, the lower limit of the indicator located at 1.0590 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.
