Last Friday, the pair formed several entry signals. Let's take a look at the 5-minute chart and discuss what happened. In my previous forecast, I focused on the level of 1.0823 and recommended making market entry decisions based on it. The pair fell and a false breakout was formed along with the divergence on the MACD indicator near the weekly low - what could be better than this buy signal at the end of the week. As a result, the pair was up by more than 50 pips. In the afternoon, protecting and forming a false breakout at 1.0874 produced a sell signal, which sent the pair down by 20 pips.
For long positions on EUR/USD
Strong US data on American spending at the end of last year, as well as the state of the real estate market, have boosted the demand for the dollar on Friday. It is clear that the recent reports allow the Federal Reserve to stick to its current interest rate policy. We will learn about any new trends and signals from the central bank this Wednesday after its two-day FOMC meeting. Meanwhile, the market, especially today, will be muted as there are absolutely no fundamental reports to consider. And by the way, this won't work well for the euro, so I will act on the pair's decline. Forming a false breakout near the nearest support at 1.0814 would be a suitable option for me to enter the market with the goal of correcting higher towards 1.0850, which is in line with the bearish moving averages. Only a breakout and a downward test of this range will create a good entry point for long positions, aiming for an upward correction and the prospect of testing 1.0885. The ultimate target is found at the 1.0931 high where I plan to take profits. Should EUR/USD decline and show no activity at 1.0814 in the first half of the day, the pressure on the pair will return. In this case, I will try to enter the market after a false breakout forms near 1.0782. I would consider opening long positions on a rebound from 1.0744, aiming for an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
Bears still have the chance to build a new trend. To do this, they will need to defend 1.0850 and seek a breakdown of 1.0814, a level established at the end of last Friday. In case the pair edges up in the first half of the day, forming a false breakout at 1.0850 would confirm the presence of major players in the market, which may push the pair down to the area of 1.0814. However, do not forget about the lack of news and low market volatility. Only after a breakout and consolidation below this range, as well as an upward retest, do I expect another sell signal, and the pair could fall to 1.0782. The ultimate target here is the 1.0744 low, where I plan to take profits. In case EUR/USD moves upwards during the European session without bearish activity at 1.0850, the demand for EUR/USD will return, and it may be possible for the euro to recover at the beginning of the week, and the pair could keep trading within the sideways channel. In that case, I will delay going short until the price tests the next resistance at 1.0885. I may consider selling there but only after a failed consolidation. I plan to initiate short positions on a rebound from the 1.0931, aiming for a downward correction of 30-35 pips.
COT report:
In the COT report (Commitment of Traders) for January 16, there was a decrease in long positions and an increase in short positions, which indicates a change in the balance of power in favor of the U.S. dollar. Obviously, a strong labor market and a high probability of a new spike in U.S. inflation early this year helps maintain the chances of a tight policy from the Federal Reserve. If the timing of the first Federal Reserve rate cut is pushed to a later period, this will help the dollar strengthen against the euro. The European Central Bank meeting will be held this week, and the Bank may also leave rates unchanged in its fight against inflation, which should level the euro's position in the EUR/USD pair, and help keep the price within the channel. The COT report indicated that long non-commercial positions fell by 4,179 to 204,294, while short non-commercial positions increased by 10,606 to 100,202. As a result, the spread between long and short positions increased by 666.
Indicator signals:
Moving averages:
Trading just around the 30- and 50-day moving averages indicates sideways movement.
Please note that the time period and levels of the moving averages are analyzed only for the 1H chart, which differs from the general definition of the classic daily moving averages on the 1D chart.
Bollinger Bands
If EUR/USD declines, the indicator's lower border near 1.0830 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.
