A sole entry signal was generated yesterday. Let's take a look at the M5 chart to get a picture of what happened. In my previous review, I focused on the 1.0758 level and considered entering the market there. A surge in price in the first half of the day resulted in a false breakout through 1.0758. I took a loss because the bulls broke through 1.0758 on their second attempt and pushed the pair higher. In the second half of the day, no signals were made.
When to open long positions on EUR/USD:
Currently, there are not so many traders willing to buy risky assets, especially in the face of a looming recession. The most recent euphoria triggered by expectations of stronger economic growth is fading away. Today, the pair is likely to extend the downtrend rather than go higher. It will hardly encounter support. Rather, it will face pressure in the European session after the release of an industrial production report in Italy and an economic outlook from the European Commission. In the North American session, traders will start locking in profits. That is how I see things unfolding today. In such a case, the bullish activity is highly likely to increase at around 1.0706. After a false breakout through the mark, I will buy the instrument, targeting the 1.0747 level. Slightly below it, there are the bearish moving averages. An additional buy signal will be made after a breakout and a downside retest of the range, with the target at the 1.0785 resistance level. A breakout through this point will trigger a row of bearish stop orders and give an additional signal, targeting 1.0827, where I am going to lock in profits. If EUR/USD goes down and there is no bullish activity at 1.0706 in the first half of the day, the pressure will remain strong, and the bulls will lose control over the market after yesterday's attempt to extend the corrective move. The focus will be on support at 1.0671. A false breakout through the barrier will generate a buy signal. It will also become possible to open long positions at the 1.0618 low, or even lower, at 1.0569, allowing a bullish correction of 30 to 35 pips intraday.
When to open short positions on EUR/USD:
I will consider selling at 1.0747, the new resistance level formed yesterday. But before that, I am going to make sure that there are large traders in the market. If the price goes higher after Italy's macro statistics and the European Commission's economic outlook, that will produce a sell signal, targeting 1.0706. A breakout and a retest of this range will make an additional sell signal with the target at 1.0671. The market will turn bearish. Consolidation below this range on the back of upbeat macro data from the US will result in a fall to 1.0618 where I am going to lock in profits. In case of growth in EUR/USD in the European session and the absence of the bears at 1.0747, the bulls will try to regain control over the market. The pair will then get stuck in a sideways channel. In such a case, it will become possible to open short positions after the pair's failed attempt to settle at 1.0785. On a rebound, the instrument could be sold at the 1.0827 high, allowing a bearish correction of 30 to 35 pips intraday.
Commitments of Traders:
The COT report for January 24 revealed an increase in both long and short positions. Traders have opened even more long positions following the hawkish speeches of ECB officials. They bet on further monetary tightening by the ECB and anticipate the dovish Fed. The American central bank may reduce the pace of tightening for the second straight time. Weak macro data in the US, namely a drop in retail sales and a slowdown in inflation may force the regulator to take a pause in rate hikes to avoid any further harm to the economy. This week, several central banks will hold their meetings. Their outcomes will determine the future dynamic of EUR/USD. According to the COT report, long non-commercial positions increased by 9,464 to 237,743. Short non-commercial positions grew by 2,099 to 103,394. Consequently, the non-commercial net position came in at 134,349 from 126,984 a week ago. Investors seem to believe in the pair's upside potential. Anyway, they are waiting for more clues from central banks regarding interest rates. The weekly closing price rose to 1.0919 from 1.0833.
Indicator signals:
Moving averages
Trading is carried out slightly above the 30-day and 50-day moving averages, indicating market uncertainty.
Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.
Bollinger Bands
Resistance is seen at 1.0785, in line with the upper band. Support stands at 1.0705, in line with the lower band.
Indicator description:
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
- Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
- Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
- Bollinger Bands. Period 20
- Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions are the total long position of non-commercial traders.
- Non-commercial short positions are the total short position of non-commercial traders.
