What is needed to open long positions on EUR/USD

Yesterday, EUR/USD provided a few good signals for opening both long and short positions. Now let's look at the 5-minute chart and figure out what actually happened. In my previous article, I turned your attention to 1.1325 and advised you taking trading decisions with this level in focus. The fundamental data released yesterday such as the Sentix consumer confidence for the Eurozone and the labor market report enabled the buyers to protect support of 1.1325 where they found out a signal for opening long positions. Later in the day, the buying impulse faded after the price grew 15 pips. So, EUR/USD retreated back to this level. In the second half of the day, this level was broken and tested upwards that generated a signal for opening short positions. I described this trading opportunity in my yesterday's trading plan for the American session. As a result, the currency pair fell 40 pips. Active price action of the buyers at near 1.1294 triggered a new signal for long positions. Afterwards, EUR regained its footing and rebounded back by 40 pips to the middle of the trading range.

Before we discuss further prospects of EUR/USD, let's look at what is going on in the futures market and what has changed in the COT report. The Commitment of Traders report from January 4 logs a sharp increase in long positions and contraction in short positions that had an impact on the negative delta's value. It indicates that the market is changing its sentiment and demand for EUR has recovered despite the Fed's hawkishness and its shift towards aggressive monetary tightening. The highlight of the week is an inflation report from the US. The US CPI is expected to jump above 7% on year in December. Investors will revise their portfolios following the inflation report. Fresh evidence of soaring inflation will push the US central bank into raising interest rates sooner than later. Another thing is that the US labor market is improving steadily. In this context, we can reckon that the US regulator might increase interest rates at least 4 times this year.

The ECB is going to withdraw its emergency bond-buying program in full in March 2022. However, the regulator does not plan other moves towards tightening its monetary policy. This dovish stance caps the upside potential of risky assets.

According to the last COT report, long non-commercial positions grew to 199,073 from 196,595 for the week. At the same time, short non-commercial positions dropped from 206,757 to 200,627. It proves that traders are poised to add long positions on EUR/USD bearing in mind a further upward correction of EUR/USD. By and large, the overall non-commercial net positions declined from -10,162 to -1,554. EUR/USD closed last week a bit higher at 1.1302 against 1.1277 a week ago.

The technical picture is a bit different now compared to yesterday, though the market sentiment is roughly the same. Some ECB officials and President Christine Lagarde are due to speak in the first half of the day. Beware of higher volatility. In case EUR goes down, a fake breakout at 1.1316 will generate a nice market entry point for long positions like yesterday. Besides, the bulls have to push the pair up. If the bulls are not active during the test of 1.1316, it would be better not to enter the market with long positions. A breakout of this border could trigger massive sell-offs. In this case, I would recommend buying EUR/USD only after the price updates support of 1.1286 where the bulls were active yesterday. I would advise entering the market there only on condition of a false breakout.

We could open long positions immediately at a bounce off 1.1265 with intraday targets 15-20 pips above. Importantly, the EUR bulls should regain control over 1.1343. A breakout and consolidation above this level will revive appetite for risk. This will create an excellent entry point with long positions. The target will be at the upper border of the trading range which the buyers failed to break last Friday. If EUR/USD exits the trading range, this will influence greatly market sentiment. Please be careful above this level. A breakout and a test of 1.1363 downwards will push the price towards highs of 1.1385 and 1.1415. A more distant target is seen at 1.1442 where I recommend profit taking.

What is needed to open short positions on EUR/USD

The sellers are not assertive for the time being as they could not settle at 1.1286 yesterday. The best scenario for selling in the first half of the day will be a fake breakout at 1.1343 that will create an excellent entry point with short positions with the prospects of another fall towards support of 1.1316. The trading range might be broken and tested in the opposite direction after the speeches of ECB officials. We might find out an extra signal for a market entry with short positions. This will push the pair towards a low of 1.1248 where I recommend profit taking. In case EUR/USD recovers during the European session and the bears are sluggish at 1.1343, the best scenario will be selling at a fake breakout of the upper border of the trading range at 1.1363. Short positions could be opened immediately at a drop off highs at 1.1385 and 1.1415, bearing in mind a downward correction of 15-20 pips.

Indicator signals:

Trading is carried out roughly at the 30 and 50 daily moving averages. It indicates that the market is hesitant about a further trajectory.

Moving averages

Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.

Bollinger Bands

A breakout of the indicator's upper border at about 1.1355 will encourage EUR's growth. Alternatively, a breakout of the indicator's lower border at 1.1300 will out the pair under selling pressure.

Description of indicators

• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked green on the chart.
• MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
• Bollinger Bands (Bollinger Bands). Period 20
• Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Long non-commercial positions represent the total long open position of non-commercial traders.
• Short non-commercial positions represent the total short open position of non-commercial traders.
• Total non-commercial net position is the difference between short and long positions of non-commercial traders.