Yesterday, the pair formed several good signals to enter the market. Let's analyze what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0870 as a possible entry point. Growth and false breakout of this level generated a sell signal, and the pair fell by more than 60 pips. During the US session, safeguarding the support level at 1.0808 and weak US data produced a buy signal. As a result, EUR/USD managed to compensate for all morning losses and rose by more than 50 pips.
For long positions on EUR/USD:
Softer-than-expected preliminary US PMI data exerted downward pressure on the dollar and the euro strengthened in the second half of the day. Obviously, there's a lot of market manipulation, making the situation increasingly tense before the Jackson Hole symposium. Yesterday's data made it clear: if the Federal Reserve continues its tight policy stance, the economic situation will only worsen. This has further confused market participants, who were expecting hawkish statements from Fed Chair Jerome Powell. In the absence of EU reports in the first half of the day, I expect EUR/USD to trade within the channel.
Therefore, it is advisable to trade on a dip following a false breakout near the low of 1.0849, which is in line with the bullish moving averages. An immediate resistance target is set at 1.0889, formed on Tuesday. A breakout and a downward test of this range will strengthen demand for the euro, suggesting a bullish correction around 1.0928. The ultimate target is found at 1.0958, where I will be locking in profits. If EUR/USD declines and bulls are idle at 1.0849, the bear market will persist. Only a false breakout around the next support at 1.0827 will signal to buy the euro. I will initiate long positions immediately on a rebound from the low of 1.0804, aiming for an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
The sellers lost all their advantage yesterday and now they need to start from the beginning. Today, to maintain the bearish momentum, sellers will have to assert their strength at the new resistance of 1.0889. The pair may test this level soon. The absence of economic reports will help the bears with a false breakout of this level and will lead to another descent towards the 1.0849 support. However, only a breakout below this range, followed by an upward retest, will generate another sell signal, paving the way to the low of 1.0827, where I expect big buyers to emerge in hopes of building the lower band of the new ascending channel. The ultimate target is seen at 1.0804, where I will be locking in profits.
If EUR/USD moves upward during the European session and lacks bearish activity at 1.0889, the bulls may try to re-enter the market. In such a scenario, I would go short only when the price tests the new resistance at 1.0928 that was formed yesterday. Selling at this point is possible only after a failed consolidation. I will initiate short positions immediately on a rebound from the high of 1.0958, considering a downward correction of 30-35 pips within the day.
COT report:
The COT (Commitment of Traders) report for August 15 shows a notable increase in long positions and a drop in short positions. These figures already factor in the crucial US inflation data, which brought back some buyers to the market. The Federal Reserve meeting minutes released last week also indicated that not all committee members are aligned with the idea of raising interest rates to combat inflation. This keeps the chances of the euro's recovery alive, especially following the Jackson Hole symposium happening later this week where Federal Reserve Chairman Jerome Powell is scheduled to speak. His address might shed light on the central bank's future policy direction. It is important to note that the recent decline in the euro seems to be appealing to traders. The optimal medium-term strategy under current conditions remains buying risk assets on a dip. The COT report highlights that non-commercial long positions increased by 4,418 to stand at 232,466, while non-commercial short positions decreased by 5,634 to 72,603. Consequently, the spread between long and short positions surged by 1,125. The closing price was lower, settling at 1.0922 compared to 1.0981 the previous week.
Indicator signals:
Moving averages:
Trading is taking place around the 30-day and 50-day moving averages, indicating market uncertainty.
Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
If EUR/USD declines, the indicator's lower border near 1.0825 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.
