Yesterday, there was only one entry point. Let's look at the 5-minute chart and figure out what actually happened. In the morning article, I turned your attention to 1.0758 and recommended making decisions with this level in focus. A rise and a false breakout of 1.0758 against the background of a lack of macro stats and a limited upward potential created a sell signal. As a result, the downward movement totaled about 30 pips. However, the pair did not reach the support level of 1.0722. In the second half of the day, there were no entry points as an upward retest did not occur after a breakout of 1.0758.
When to open long positions on EUR/USD:
The euro climbed in the afternoon on Wednesday amid the empty economic calendar and increased risk appetite even ahead of CPI data. It appears investors are anticipating a slowdown in inflation in December. If so, the euro is sure to grow against the US dollar. As for today's first half of the day, there will be no crucial reports. The monthly bulletin of the European Central Bank is unlikely to affect the trajectory of the pair. It may enter a correction phase before the publication of US inflation data. This move will be quite beneficial for bulls. A decline and a false breakout of yesterday's resistance level of 1.0755, which acts as support now, could give a buy signal. Below this level, the moving averages are passing. If so, the pair may approach a new monthly high of 1.0791. A breakout and a downward retest of this level are likely to take place if inflation decreases. It will create an additional buy signal with the prospect of a jump to 1.0820, which will stimulate the formation of a bullish trend. A breakout of this level will also force bears to Stop Loss orders and give an additional buy signal. The pair could advance 1.0853 where I recommended locking in profits. If EUR/USD drops and bulls show no activity 1.0755 in the first half of the day, the pressure on the pair will increase. Therefore, it is better to pay attention to the support level of 1.0722. Only a false breakout of this level will provide a buy signal. You could open long positions at a bounce from a low of 1.0687 or 1.0653, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on EUR/USD:
Bears failed to protect 1.0755. They are likely to make an attempt to regain control of this level. If it does not happen before the release of the inflation report, bulls will remain in control. If EUR/USD rises during the European session, it is better to open short positions after an unsuccessful consolidation above the new monthly high of 1.0791, similar to what I discussed above. it will provide a new selling opportunity. The price could decline to 1.0755. Bulls and bears are likely to tussle for this level as moving averages benefiting bulls are passing below this level. A breakout and an upward test of this level could significantly undermine short-term bullish prospects, escalating pressure on the euro. It will give a new sell signal with the prospect of a drop to 1.0722. A decrease below this level will occur only in the case of disappointing inflation data. The figure may decline less than economists had expected, which will cause a drastic downward movement to 1.0687. A more distant target will be the 1.0653 level. A retest of this level will indicate the formation of a bear market. I recommend locking in profits there. If EUR/USD grows during the European session and bears show no energy at 1.0791, I would advise you to postpone short positions until a false breakout of 1.0820. You could sell EUR/USD at a bounce from 1.0853, keeping in mind a downward intraday correction of 30-35 pips.
COT report
The COT report (Commitment of Traders) for January 3 logged a sharp drop in both long and short positions. Traders preferred to lock in profits at the start of the year due to uncertainty over the further policy decisions of the Fed and the ECB. Inflation is starting to slow down. This is why it is high time to abandon aggressive tightening. However, the Fed will hardly do that. Traders are concerned that monetary tightening could trigger a recession in the global economy this year. For this reason, demand for risky assets is limited. Apart from that, traders are now anticipating the US inflation report. It is likely to provide more clues about the Fed's future plans for monetary policy. Fed Chairman Jerome Powell's speech this week is likely to be devoted to this problem. The COT report revealed that long non-commercial positions decreased by 29,344 to 222,543, while short non-commercial positions fell by 13,097 to 92,628. At the end of the week, the total non-commercial net position declined sharply and amounted to 129,915 against 142,279. It appears investors are still opening long positions on the euro despite uncertainty over the ECB's steps on monetary policy. They are betting on a policy reversal this year. However, the euro needs new drivers for further growth. The weekly closing price slid to 1.0617 against 1.0690.
Indicators' signals:
Trading is carried out above the 30 and 50 daily moving averages. It indicates that bulls are trying to cement the upward movement.
Moving averages
Note: The period and prices of moving averages are considered by the author on the H1 (1-hour) chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
If EUR/USD rises, the indicator's upper border at 1.0770 will serve as resistance. In case of a drop, the indicator's lower border at 1.0755 will act as support.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked 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 the short and long positions of non-commercial traders.
