Yesterday, traders received several signals to enter the market. Let us take a look at the 5-minute chart to figure out what happened. Earlier, I asked you to pay attention to the level of 1.0615 to decide when to enter the market. The pair broke this level but did not show a downward test. As a result, traders did not get an entry point. In the second part of the day, the pair made several unsuccessful attempts to return to 1.0615, which led to a false breakout and a good short signal. This resulted in a sell-off and a decline to the support level of 1.0576, which allowed investors to earn 30 pips.
Conditions for opening long positions on EUR/USD:
Comments provided by the Fed's officials and the US reports for the fourth quarter, especially the GDP data and the labor market figures, encouraged buyers of the US dollar. Against the backdrop, the euro was sold off and slid to its weekly lows. Today, traders should focus on Germany's GDP report, which may unveil a drop, and Germany's consumer sentiment index, which may decline, thus causing a new sell-off of the euro. However, buyers could be supported by a speech that will be delivered by Member of the Governing Council of the ECB Joachim Nagel. He is expected to speak about the necessity of further monetary policy tightening. If pressure on the euro remains the same, the pair may touch the low of 1.0579. Yesterday, bears failed to push the price lower. In case of a false breakout of this level, it will possible to open long positions with the target at the resistance level of 1.0615. A breakout and a downward test of 1.0615 amid strong data from Germany will give an additional buy signal with the target at 1.0655. A breakout of 1.0655 will affect bears' stop orders and give one more buy signal with the target at 1.0695, where it is better to lock in profits. If the euro/dollar pair declines and buyers fail to protect 1.0579 in the first part of the day, pressure on the pair will remain intact. A breakout of this level will intensify the bearish trend. In the event of this, speculators will focus on the next support level of 1.0533. A false breakout of this level will lead to a buy signal. Traders may also go long just after a bounce off the low of 1.0487 or even lower – at 1.0451, expecting a rise of 30-35 pips within the day.
Conditions for opening short positions on EUR/USD:
Sellers continue to control the market and are doing what we expected. Traders may open sell orders after a false breakout near the closest resistance level of 1.0615. There are bearish MAs near this level. In this case, the target will be located at the weekly low of 1.0579. A breakout and a reverse test of this level will give an additional sell signal with the target at 1.0533, which will intensify bearish sentiment. A settlement below this area may cause a deeper drop to 1.0487, where it is better to lock in profits. If the euro/dollar pair increases during the European session and bears fail to protect 1.0615 amid strong data from Germany and hawkish comments from the ECB, it will be better to avoid selling until the price touches 1.0655. There, traders may go short after an unsuccessful settlement. It is also possible to open short positions just after a rebound from the high of 1.0695, expecting a decline of 30-35 pips.
COT report
Since a technical problem in the CFTC has been settled yet. The latest COT report was published on January 24. Thus, 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 number of 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.
Signals of indicators:
Moving Averages
Trading is performed below the 30- and 50-day moving averages, which points to the bearish sentiment.
Note: The author considers the period and prices of moving averages 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 increases, the resistance level will be formed by the upper limit of the indicator located at 1.0615. In case of a decline, the lower limit of the indicator located at 1.0580 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-commercia 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.
