When to open long positions on EUR/USD:
In my morning article, I turned your attention to 1.0747 and recommended making decisions with this level in focus. Now, let's look at the 5-minute chart and figure out what actually happened. A jump in the euro in the morning led to a false breakout of 1.0747. Shortly after, the euro sank to 1.0706. Its decline totaled 40 pips. A breakout of 1.0706 and an upward retest gave another sell signal. It is relevant at the time of writing the article. The technical outlook remained unchanged.
During the American session, the University of Michigan Consumer Sentiment Index is on tap. If the reading rises, it may facilitate the growth of the US dollar. This is why a downward scenario for the euro looks likely. The speech of Fed official Christopher Waller may also increase demand for the US dollar. If the pressure on EUR/USD escalates in the afternoon, a downward movement to the new support level of 1.0671 may take place. This is also a weekly low. Only after a false breakout of this level, I would advise you to open long positions with the prospect of an increase to 1.0710. The bulls failed to push the pair to this level in the morning. A breakout and a downward retest of this level will give an additional entry point into long positions with a rise to 1.0747. A breakout of this level will also force the bears to close their Stop Loss orders. It will create a buy signal. The pair may reach 1.0785 where I recommend locking in profits. If EUR/USD declines and buyers show no energy at 1.0671 in the afternoon, the pressure on the pair will only increase amid a high probability of a bearish trend. In this case, one should pay attention to the support level of 1.0618. Only a false breakout of this level will provide a new buying opportunity. You could buy EUR/USD at a bounce from 1.0569 or 1.0525, keeping in mind an upward intraday correction of 30-35 pips.
When to open short positions on EUR/USD:
While trading is carried out below 1.0710, a downward movement may occur. If the US unveils strong economic data, it is better to wait for a false breakout of 1.0710 before opening short positions. Bears are trying to push the pair to weekly lows. They are now aiming at the target level of 1.0671 – the weekly low formed on February 7. A breakout and an upward retest of this level will create an additional sell signal with a drop to 1.0618. It will indicate a bear market. A fall below this level against the background of a sharp increase in the University of Michigan Consumer Sentiment Index will cause a stepper decline to 1.0569. At this level, I recommend locking in profits. If EUR/USD rises during the US session and sellers show no energy at 1.0710, it will undermine a bearish momentum. It could trigger a jump in the euro. In this case, I would advise you to postpone short positions until a false breakout of 1.0747 where the moving averages are benefiting the bears. You could also sell EUR/USD at a bounce from a high of 1.0785, keeping in mind a downward intraday correction of 30-35 pips.
COT report
The COT report for January 24 logged a rise in both short and long positions. Traders have significantly increased long positions following hawkish speeches of ECB policymakers. They are betting on further monetary tightening by the ECB and the Fed's dovish stance. The US regulator may reduce the pace of tightening for the second time in a row. Weak macro stats on the US economy, namely a drop in retail sales and a slowdown in inflation may force the central bank to take a pause in rate hikes to avoid any damage. This week, several central banks will hold their meetings. Their results will eventually determine the trajectory of the euro/dollar pair. According to the COT report, the long positions of the non-commercial group of traders increased by 9,464 to 237,743 while short positions advanced by 2,099 to 103,394. At the end of the week, the total non-commercial net position rose to 134,349 from 126,984. It appears investors believe in the upside potential of the euro. Nevertheless, they are waiting for more clues from central banks regarding interest rates. The weekly closing price grew to 1.0919 from 1.0833.
Indicators' signals:
Trading is carried out below the 30 and 50 daily moving averages, which indicates the likelihood of a bear market.
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 declines, the indicator's lower border at 1.0900 will serve 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.
