Yesterday, the pair formed several entry signals. Let's see what happened on the 5-minute chart. In my morning review I mentioned the level of 1.0806 as a possible entry point. A rise to this level and its possible breakout generated a sell signal, in line with the trend developed on Friday. However, the price declined by just 13 pips, and then the euro was back in demand. In the afternoon, another false breakout formed a sell signal, sending the price down by 20 pips.
COT report
Before discussing the prospects of the EUR/USD pair, let's examine what has been going on in the futures market and how the positions in the Commitments of Traders have changed. The COT report for August 29 indicates a reduction in long positions and an increase in short ones. Such market shifts mirror the hawkish remarks made by the Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium. The recently released data on the US Personal Consumption Expenditures Index and the labor market have further convinced investors that the Fed might need to hike rates once more, thus preserving the dollar's allure. Interestingly, the euro's decline offers a compelling point of entry. In the present circumstances, an optimal medium-term strategy remains to buy risk assets on dips. The COT report reveals that the non-commercial long positions decreased by 8,849 to stand at 230,542, while the non-commercial short positions jumped by 3,232 to 83,863. Consequently, the spread between long and short positions expanded by 4,753. The closing price dropped to 1.0882 from 1.0866, indicating a bearish market.
For long positions on EUR/USD
Today, significant reports from the Eurozone countries are scheduled for release, which could bring renewed pressure on EUR/USD. We expect relatively weak PMI readings for the Eurozone's service sector and the composite PMI. A decline in the services sector would drive further sell-offs in EUR/USD, continuing the bearish trend seen since the end of last month. Due to this, I intend to act on dips only after a false breakout at the 1.0772 support level. This will serve as a confirmation of a correct entry point for long positions aiming for a recovery towards the 1.0806 resistance, which performed flawlessly yesterday. A breakout and a downward test of this range against the backdrop of strong PMI readings, especially from Germany, will bolster demand for the euro, offering it a chance to spike to 1.0833. The ultimate target will be the 1.0854 zone, where I will lock in profits. In the event of EUR/USD dropping and a lack of activity at 1.0772, the bears will retain market control. In such a scenario, only the formation of a false breakout around 1.0734 will give a buy signal. I will open long positions immediately on a rebound from 1.0705, considering an upward correction of 30-35 pips within the day.
For short positions on EUR/USD
Sellers successfully tested their targets yesterday, and we can now anticipate a continuation of the bearish narrative. It would be beneficial for them to have weak data from the Eurozone and to defend the 1.0806 resistance once more, where moving averages are aligned in favor of the sellers. A false breakout there will provide an entry point for a downward surge towards the monthly low at 1.0772. Only after a breakout and consolidation below this range, followed by a bottom-up retest, do I expect to receive another sell signal targeting 1.0734. This is where large buyers may step in. The ultimate target will be the 1.0705 zone, where I will lock in profits. If EUR/USD moves upward during the European session and bears show no activity at 1.0806, bulls will regain the advantage. Under such circumstances, I will postpone selling the pair until the price hits the new resistance at 1.0833. Selling there is also an option, but only after a failed consolidation. I will initiate short positions immediately on a pullback from the 1.0854 high, considering a downward correction of 30-35 pips.
Indicator signals:
Moving Averages
Trading below the 30- and 50-day moving averages indicates a possible decline in the pair.
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 the pair declines, the lower band of the indicator at 1.0775 will act as support. In case of an upward movement, the upper band of the indicator at 1.0806 will act as resistance.
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.
