Analyzing Wednesday's trades:
EUR/USD on 1H chart
EUR/USD staged a comeback on Wednesday, but there is no reason to rejoice. The euro strengthened and the dollar fell due to the US ADP report. For beginners, it is worth noting that this report is comparable to the NonFarm Payrolls, but the latter is considered more important and reliable. It has happened several times that ADP signaled growth while Nonfarms indicated a decline. Therefore, it's not advisable to judge the labor market based on the ADP report.
Nevertheless, the market responded quite actively to this report on Wednesday, although the ADP value was only slightly below expectations. However, the dollar's fall was not as significant. The most interesting events include the results of the FOMC meeting and Federal Reserve Chair Jerome Powell's speech.
The euro approached the events in a sluggish manner. The downtrend persists, but it can easily turn into an uptrend if the forex market is not satisfied with Powell's rhetoric. It is worth noting that Powell must take a very tough stance to restore confidence in the dollar. He certainly should not talk about lowering the key rate in the near future.
EUR/USD on 5M chart
Three trading signals were generated on the 5-minute timeframe. All three were around the level of 1.0835. As seen in the chart above, false signals were forming around this level on Tuesday, and this trend continued on Wednesday. The first sell signal turned out to be a false signal, but the price managed to fall by 15 pips, so a Stop Loss was set to breakeven, and the trade was closed. The new bounce from the level of 1.0835 also did not lead to a significant decline in quotes. The trade ended in a loss. Then, a buy signal was generated, which should not have been executed, but at the same time, a weak ADP report was released, so as an exception, a long position could be opened. Since before the FOMC meeting, we advised you to leave the market, the long position should have been manually closed as soon as traders were satisfied with the profit level. Now it is also possible to move the Stop Loss to breakeven and then patiently await Powell's speech.
Trading tips on Thursday:
On the hourly chart, EUR/USD seems ready to resume the downward trend, but anything can happen after the FOMC meeting. We expect the euro to fall further, but now everything depends on the fundamental background.
On Thursday, we anticipate confusing mixed movements, which should be considered in conjunction with the movements on Wednesday night. For instance, if the pair fell on Wednesday, it may rise on Thursday. There will be many macroeconomic and fundamental events on Thursday, so technical analysis will take a back seat.
The key levels on the 5M chart are 1.0611-1.0618, 1.0668, 1.0733, 1.0767-1.0781, 1.0835, 1.0896-1.0904, 1.0940, 1.0971-1.0981, 1.1011, 1.1043, 1.1091, 1.1132-1.1145, 1.1184. On Thursday, European Central Bank President Christine Lagarde will speak, and reports on the Manufacturing PMI and inflation will be published. All three events are quite important. From the US docket, weekly Initial Jobless Claims and ISM Manufacturing PMI will also be due.
Basic trading rules:
1) Signal strength is determined by the time taken for its formation (either a bounce or level breach). A shorter formation time indicates a stronger signal.
2) If two or more trades around a certain level are initiated based on false signals, subsequent signals from that level should be disregarded.
3) In a flat market, any currency pair can produce multiple false signals or none at all. In any case, the flat trend is not the best condition for trading.
4) Trading activities are confined between the onset of the European session and mid-way through the U.S. session, after which all open trades should be manually closed.
5) On the 30-minute timeframe, trades based on MACD signals are only advisable amidst substantial volatility and an established trend, confirmed either by a trendline or trend channel.
6) If two levels lie closely together (ranging from 5 to 15 pips apart), they should be considered as a support or resistance zone.
How to read charts:
Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them.
Red lines represent channels or trend lines, depicting the current market trend and indicating the preferable trading direction.
The MACD(14,22,3) indicator, encompassing both the histogram and signal line, acts as an auxiliary tool and can also be used as a signal source.
Significant speeches and reports (always noted in the news calendar) can profoundly influence the price dynamics. Hence, trading during their release calls for heightened caution. It may be reasonable to exit the market to prevent abrupt price reversals against the prevailing trend.
Beginning traders should always remember that not every trade will yield profit. Establishing a clear strategy coupled with sound money management is the cornerstone of sustained trading success.
