Yesterday, the currency pair produced several market entry signals. Let's analyze what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0908 as a possible entry point. A break and reverse test of 1.0908 created a sell signal. As a result, the euro fell by more than 30 pips. In the afternoon, failing to return to 1.0877 generated another sell signal and the pair fell to the 1.0845 area.
For long positions on EUR/USD:
The euro fell on Thursday as US data showed that the personal consumption expenditures (PCE) price index and US consumer spending have both increased. In today's European session, the euro is still under pressure, as eurozone countries are expected to show rather bleak Manufacturing PMIs. A downward revision will lead to a new wave of EUR/USD decline. In this case, it is best to act on a decline after a false breakout forms around the new support of 1.0828. Divergence on the MACD indicator during the test of 1.0828 will confirm the correct buy signal, in hopes of the EUR/USD recovery around 1.0857 – a resistance formed as a result of yesterday. A breakout and a downward test of this range amid good eurozone data would strengthen demand for the euro, potentially pushing it towards a breakout to 1.0884. Currently, the area is marked by moving averages favoring sellers. The ultimate target is found at 1.0908, where I will be locking in profits. If EUR/USD declines and bulls are idle at 1.0828, the bears will regain control of the market but I wouldn't count on a sharp decline before the release of the US labor market data. Therefore, only a false breakout around 1.0799 would be a buy signal for the euro. I will initiate long positions immediately on a rebound from 1.0768, aiming for an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
Sellers continue to control the market, and all they need to do is to defend 1.0857. Weak data from Germany and the eurozone will allow the bears to protect 1.0857. A false breakout at this level would signal a selling opportunity and may potentially lead to a decline toward the new support level of 1.0828. I anticipate another sell signal only after a breakout and sustained movement below this range, followed by an upward retest. This could pave the way for the pair to reach the 1.0799 target, which is where I expect big buyers to emerge. The ultimate target is seen at 1.0768, where I will be locking in profits. If EUR/USD moves upward during the European session and lacks bearish activity at 1.0857, the bulls will gain an advantage, but we can only expect a sharp rise after the release of US labor market data. In this scenario, I would only go short when the price hits the new resistance at 1.0884. Selling at this point is possible only after a failed consolidation. I will initiate short positions immediately on a rebound from the high of 1.0982, considering a downward correction of 30-35 pips within the day.
COT report:
The COT report for August 22 recorded a rise in both long and short positions. Considering the release of rather weak PMI data in the US, indicating economic contraction, as well as hawkish comments from Federal Reserve Chairman Jerome Powell during the Jackson Hole Symposium, it is not surprising that there were slightly more short positions than the long ones. However, the decline in the euro presents an attractive opportunity for traders, and the optimal medium-term strategy in the current conditions remains to buy risk assets on dips. According to the COT report, non-commercial long positions increased by 6,925 to reach 239,391, while non-commercial short positions jumped by 8,028 to 80,028. As a result, the spread between long and short positions decreased by 3,173. The closing price dropped to 1.0866 from 1.0922, indicating a bearish market sentiment.
Indicator signals:
Moving averages:
Trading is occurring below the 30 and 50-day moving averages, indicating that the pair is under pressure.
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 around 1.0828 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.
