In my morning forecast, I highlighted the 1.0506 level as a key decision point for market entry. Let's look at the 5-minute chart to understand what happened. A rise followed by a false breakout at this level provided an excellent opportunity to sell the euro, resulting in a 35-point decline. The technical picture has been revised for the second half of the day.
Long Position Requirements for EUR/USD:
News of easing price pressures in the Eurozone weighed on the euro, causing the EUR/USD pair to drop during the first half of the day. However, a significant sell-off did not materialize, shifting all attention to the Federal Reserve's interest rate decision and Fed Chair Jerome Powell's speech. His forecasts and outlook on monetary policy could significantly influence the pair's direction, strengthening the US dollar.
If the pair declines, only a false breakout near the 1.0482 support level (established during yesterday's trading) would provide a suitable condition to open long positions targeting a return to 1.0508. A breakout and retest of this range would confirm the validity of the long entry, aiming for a rise to 1.0534. The furthest target would be the 1.0567 high, where I plan to lock in profits. Testing this level would be possible if the Fed adopts a dovish stance, reigniting bullish momentum for the euro.
If the EUR/USD falls and lacks buyer activity around 1.0482, selling pressure will likely increase, driving the euro to a deeper decline. In that case, I would wait for a false breakout near the 1.0458 support level before considering new long positions. Alternatively, I would open long positions on a rebound from 1.0430, aiming for a 30–35-point intraday correction.
Short Position Requirements for EUR/USD:
If the euro rises on weak US data before the Fed's announcements, defending the 1.0508 resistance will be a top priority for sellers. A false breakout there, similar to the earlier scenario, would renew bearish momentum and provide an entry point for short positions targeting the 1.0482 support. A breakout and consolidation below this range, followed by a retest from below, would open the path to the 1.0458 low, returning the market to bearish control. The furthest target would be 1.0430, where I plan to take profits.
Testing this level would be likely if the Fed adopts a hawkish tone regarding future rate cuts. If EUR/USD rises during the second half of the day without significant bearish activity at 1.0508 (where moving averages currently support sellers), I would postpone selling until the next resistance at 1.0534. I would only sell there following an unsuccessful consolidation. Alternatively, I plan to open short positions on a rebound from 1.0567, aiming for a 30–35-point downside correction.
Commitment of Traders (COT) Report
The December 10 COT report showed an increase in short positions and a decrease in long positions. However, the overall market positioning remained largely unchanged. With the year's final Federal Reserve meeting imminent, a rate cut decision seems likely. This has recently prevented the dollar from strengthening while maintaining demand for risk assets. If the Fed takes a more cautious approach for next year, the chances of a bearish market returning to EUR/USD will increase significantly.
According to the COT report, long non-commercial positions dropped by 10,318 to 157,375, while short non-commercial positions increased by 7,766 to 232,948. The net difference between long and short positions widened by 4,450 contracts.
Indicator Signals
Moving Averages:
The pair is trading near the 30- and 50-day moving averages, indicating market uncertainty.Note: The moving averages mentioned refer to the hourly H1 chart and differ from classical daily moving averages on the D1 chart.
Bollinger Bands:In the event of a decline, the lower boundary of the indicator near 1.0490 will act as support.
Indicator Descriptions:
- Moving Average (MA): Smoothens volatility and noise to identify the current trend. Period – 50 (yellow line on the chart); Period – 30 (green line on the chart).
- MACD (Moving Average Convergence/Divergence): Measures momentum. Fast EMA – period 12; Slow EMA – period 26; SMA – period 9.
- Bollinger Bands: Defines dynamic support and resistance levels. Period – 20.
- Non-commercial traders include speculators such as individual traders, hedge funds, and large institutions using the futures market for speculative purposes.
- Long non-commercial positions: Total open long positions held by non-commercial traders.
- Short non-commercial positions: Total open short positions held by non-commercial traders.
- Net non-commercial position: The difference between long and short non-commercial positions.
