Yesterday, the instrument formed only one market entry signal. Let's look at the 5-minute chart and figure out what actually happened. In my morning forecast, I turned your attention to the level of 1.0996 and recommended making decisions with this level in focus. The pair grew, but it could not reach 1.0996 due to low volatility, which was expected in the absence of economic reports. In the afternoon, a false breakout at 1.0996 produced another sell signal. As a result, the pair fell by more than 17 pips. This is pretty good with the pair showing an intraday volatility of 30 points.
For long positions on EUR/USD:
The main item on today's agenda is the US inflation data. But more on that in the forecast for the second half of the day. Trading during the European session may be relatively muted, as only the Italian CPI figures and the economic bulletin from the European Central Bank are lined up. It is unlikely for these reports to have a serious impact on the pair's direction, so I will stick to yesterday's scenario for trading.
I will act after a decline and false breakout near the new support level at 1.0957, which the pair did not reach yesterday. Afterwards, it will be possible to get a buy signal based on an upward movement, and the pair will likely update the resistance level at 1.0996. A breakout and a downward retest of this range amid strong eurozone data will boost demand for the euro. It may continue the uptrend and update the high at 1.1037. A more distant target will be the 1.1072, where I will take profits.
If EUR/USD declines and bulls fail to defend 1.0957, which is quite possible, given the fundamental indicators we are expecting in the second half of the day, bulls may eventually lose optimism in the face of the Fed's aggressive policy. In this case, only a false breakout of the support level of 1.0915 will provide new entry points into long positions. You could buy EUR/USD at a bounce from the 1.0871 low, keeping in mind an upward intraday correction of 30-35 pips.
For short positions on EUR/USD:
Today, sellers still have a chance of maintaining a bear market as long as they protect 1.0996. It is also a good idea to regain control over the level of 1.0957. In case the pair rises in the first half of the day, I plan to open short positions only after a false breakout of 1.0966. In this case, the pair can fall to the area of 1.0957, just above which are the bullish moving averages. A breakout and consolidation below this mark as well as an upward retest, will create an entry point for short positions. Afterwards, the pair may fall to a weekly low of 1.0915. A more distant target will be the 1.0871 level where I recommend locking in profits.
If EUR/USD rises during the European session and bears fail to protect 1.0996, which is possible, the bulls will remain active. In this case, I would advise you to postpone short positions until a false breakout of the resistance level of 1.1037. New short positions can be opened there, but only after an unsuccessful consolidation. I will open short positions immediately if EUR/USD bounces off the 1.1072 high, targeting an intraday correction of 30-35 pips.
COT report:
According to the COT report (Commitment of Traders) for August 1, there was a decline in both long and short positions. This happened after the meetings of the Federal Reserve and the European Central Bank, and now traders are focused on new data that will allow them to better understand the central banks' plans. The US inflation report will be released on Thursday, which will provide further clarification. A further decrease in price pressure will likely enable the Fed to take a pause in September, while an increase will fuel more discussions about the need to further tighten monetary policy, favoring the dollar. However, even with the downward correction, in the medium term, it is better to go long on the decline. The COT report showed that long non-commercial positions decreased by 10,573 to 240,074, while short non-commercial positions fell by 5,405 to 68,012. As a result, the spread between long and short positions decreased by 4,894, which is rather favorable for the euro sellers. The closing price dropped to 1.0999 against 1.1075 a week earlier.
Indicator signals:
Moving averages:
Trading is taking place above the 30-day and 50-day moving averages, indicating a bullish attempt to re-enter the market.
Note: The author considers the period and prices of the moving averages on the hourly chart (H1), which differs from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands
If EUR/USD declines, the indicator's lower border at 1.0965 will serve as support.
Description of indicators:
• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;
• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period;
• Bollinger Bands: 20-day period;
• 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 represent the total number of long positions opened by non-commercial traders;
• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;
• The non-commercial net position is the difference between short and long positions of non-commercial traders.
