FX.co ★ EUR/USD: trading plan for the US session on February 1st (analysis of morning deals). The euro continued to decline

In my morning forecast, I highlighted the level of 1.0797 and planned to make trading decisions based on it. Let's look at the 5-minute chart and analyze what happened. The breakout of this range did occur, but the retest never occurred. Considering the low market volatility, I decided to reassess the technical picture for the second half of the day.

To open long positions on EUR/USD:

The manufacturing sector index data for the Eurozone countries for January almost coincided with preliminary values. In Germany, the indicator was revised upwards but remained below 50 points, indicating a contraction in manufacturing activity. All this contributed to the euro's decline, but a major sell-off did not occur after updating the daily minimum. The initial jobless claims, the ISM manufacturing index, and changes in non-farm labor productivity are ahead of us. If there are no significant changes, the pressure on the pair will likely persist in the second half of the day.

Opening long positions will only be considered after confirming the defense of the new support at 1.0783, formed at the end of the first half of the day. Due to this level, by the way, I had to revise more distant levels. Only the formation of a false breakout at 1.0783, similar to what I discussed earlier, would be a suitable option for entering the market, counting on a small upward correction towards 1.0820, where the moving averages, favoring sellers, intersect. Breaking and updating this range from top to bottom will provide an opportunity for buying with the development of a more powerful upward correction and the prospect of updating 1.0863. The ultimate target will be a maximum of 1.0900, where I will take profit. However, this level will only be possible with weak ISM data. In the case of a decline in EUR/USD and the absence of activity at 1.0783 in the second half of the day, which will only happen in the event of strong US labor market data, the pressure on the pair will intensify. In this case, I plan to enter the market only after forming a false breakout around 1.0758. I will consider opening long positions immediately on a rebound from 1.0727 with the goal of an upward correction of 30-35 points within the day.

To open short positions on EUR/USD:

Bears performed well in the first half of the day, but a significant sell-off could not be achieved. In case of a rise in the euro and a bullish reaction to US statistics in the second half of the day, as it was yesterday, only the formation of a false breakout at 1.0820 will indicate the presence of large players in the market, which may lead to another downward movement of the pair towards 1.0783. Only a breakthrough and consolidation below this range and a reverse test from bottom to top will provide another selling point with a collapse of the pair towards 1.0758. The ultimate target will be the minimum of 1.0727, where I will take profit. In the case of an upward movement of EUR/USD in the second half of the day, as well as the absence of bears at 1.0820, and the weak US labor market, which has caused some concern lately, may bring back demand for EUR/USD, leading to a movement of the pair upwards, returning trading to the sideways channel. In this case, I will postpone selling until testing the next resistance at 1.0863. I will also sell there, but only after an unsuccessful consolidation. I plan to open short positions immediately on a rebound from 1.0900 with the goal of a downward correction of 30-35 points.

Check out the COT report (Commitment of Traders) for January 23, which showed a reduction in long positions and an increase in short positions, indicating changes in the balance of power in favor of the US dollar. Obviously, after the meeting of the European Central Bank, where the leadership indicated its intention to lower rates this summer, pressure on the euro returned. There is nothing to catch for buyers of risk assets paired with the same US dollar, as the strong US economy allows the Federal Reserve to stick to a tough policy without fearing a recession, which cannot be said about the eurozone economy. Soon, there will be a meeting of the Open Market Committee, after which it will be clear what further steps the regulator plans to take with its policy. The COT report indicates that long non-commercial positions have decreased by 9,104 to 195,190, while short non-commercial positions have increased by 6,664 to 106,866. As a result, the spread between long and short positions has increased by 1179.

Indicator Signals:

Moving Averages:

Trading is conducted below the 30 and 50-day moving averages, indicating further pair decline.

Note: The author considers the period and prices of moving averages on the hourly chart (H1) and differ from the general definition of classical daily moving averages on the daily chart (D1).

Bollinger Bands:

In case of decline, the lower boundary of the indicator will act as support in the area of 1.0783.

Description of Indicators:

• Moving Average (MA) - A trend indicator that shows the current trend by smoothing volatility and noise. Period 50. Marked on the chart in yellow.
• Moving Average (MA) - A trend indicator that shows the current trend by smoothing volatility and noise. Period 30. Marked on the chart in green.
• Moving Average Convergence/Divergence (MACD) - A trend-following momentum indicator that shows the relationship between two moving averages of a security's price. Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands - Volatility indicator consisting of a middle band being an N-period simple moving average (SMA), an upper band at K times an N-period standard deviation above the middle band, and a lower band at K times an N-period standard deviation below the middle band.
• Non-commercial traders - speculators such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet specific requirements.
• Long non-commercial positions represent the total long open position of non-commercial traders.
• Short non-commercial positions represent the total short open positions of non-commercial traders.
• The total non-commercial net position is the difference between non-commercial traders' short and long positions.