In my morning forecast, I highlighted the levels of 1.0987 and 1.0946, recommending them as key reference points for trading decisions. Let's examine the 5-minute chart to analyze the recent developments. An unsuccessful attempt to break above 1.0987 triggered a sell signal, leading to an immediate decline towards 1.0946, in line with the trend from the previous day. However, buyers swiftly recovered, defending the 1.0946 level with a false breakout, signaling for opening long positions, which resulted in a recovery of EUR/USD, nearly reaching the daily highs. From a technical perspective, there have been no significant changes.
For initiating long positions on EUR/USD:
The upcoming US economic data promises high volatility. Particularly, reports on the core personal consumption expenditures index and US personal income and spending levels are eagerly anticipated. If inflation and income growth align with economists' forecasts, and the University of Michigan Consumer Sentiment Index and inflation expectations do not surprise traders, a bullish correction can be expected towards the end of the week.
I will follow the European session's scenario in the second half of the day since the technical outlook has mostly stayed the same. Only after a decline and a false breakout around 1.0946, similar to my earlier analysis, would I consider a buy signal with the target of retesting resistance at 1.0987. A successful breakthrough and testing of this range from top to bottom, marking the third test, will strengthen demand for the euro, providing a chance for a return to the peak of 1.1023. The ultimate target remains the area around 1.1063, where I will take profit. Buyers will be disadvantaged if EUR/USD declines and there is little activity around 1.0946, as this level has already been tested today. In such a case, only a false breakout around the next support at 1.0911 will indicate a buy signal for the euro. I will initiate long positions from the minimum of 1.0871, aiming for an upward correction of 30-35 points within the day.
For initiating short positions on EUR/USD:
Sellers still have the opportunity to establish a new bearish market, but the question remains whether they will act around the resistance at 1.0987. This level is crucial since missing it would allow bulls to regain strength by the week's end to offset yesterday's decline. Only in the event of another false breakout above 1.0987 will I consider opening short positions with a target of 1.0946. A successful breakthrough and testing of this range from bottom to top, particularly amid strong US data, will signal a sell, paving the way towards 1.0911 and establishing a bearish trend. The ultimate target will be the area around 1.0871, where I will take profit. If EUR/USD rises during the American session and bears are absent around 1.0987, which is possible, bulls will try to prove their presence despite yesterday's sell-off. In such a scenario, I will defer short positions until the next resistance at 1.1023. Selling is also possible there, but only after an unsuccessful establishment. I will initiate short positions from the maximum of 1.1063, aiming for a downward correction of 30-35 points.
In the COT report (Commitment of Traders) for July 18, both long and short positions increased. However, there were significantly more buyers, strengthening their position in the market. The release of US inflation data triggered the purchase of risky assets, including the euro. Furthermore, statements from ECB representatives last week about the need to ease strict policies in the Eurozone further reinforced expectations and bets on the euro's growth against the dollar. The Fed meeting will be held this week, where monetary policy decisions will be made. Many economists believe this will be the last rate hike in the regulator's nearly year-and-a-half cycle of rate increases, which will further weaken the dollar. The ECB meeting is likely to have a hawkish tone. Therefore, while the market remains bullish, buying the euro on declines remains the optimal medium-term strategy under the current conditions. The COT report indicates that non-commercial long positions increased by 40,163 to 264,514, while short non-commercial positions increased by 1,493 to 85,682. By the end of the week, the overall non-commercial net position grew to 178,000 against 140,162. The weekly closing price increased to 1.1300 from 1.1037.
Indicator signals:
Moving Averages
Trading is taking place below the 30 and 50-day moving averages, indicating the development of a bearish market.
Note: The author considers the period and prices of moving averages on the hourly chart (H1), which differ from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands
In case of an uptrend, the upper boundary of the indicator around 1.1010 will act as resistance.
Description of Indicators:
• Moving average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
• MACD (Moving Average Convergence/Divergence - convergence/divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20.
• Non-commercial traders - speculators, such as individual traders, hedge funds, and large institutions, using the futures market for speculative purposes and meeting specific 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.
• The overall non-commercial net position is the difference between non-commercial traders' short and long positions.
