What is needed to open long positions on EUR/USD:
Yesterday, there were many entry points in the market. Let's look at the 5-minute chart and try to figure out what actually happened. In the morning article, I highlighted the level of 1.1378 and recommended taking decisions with this level in focus. The euro rose slightly in the first half of the day immediately after the release of positive eurozone PMI data. However, the euro was unable to resume bullish momentum due to the low trading volumes as major market players were sitting on the sidelines. The euro/dollar pair declined below 1.1378. It triggered a false breakout and a signal to open short positions on the euro. In the afternoon, the pair fell by more than 50 pips from the entry point. The breakout and the downward test of 1.1344, the level that I indicated in my article for the second half of the day, gave an additional entry point into short positions. As a result, the euro fell by another 40 pips.
Before we talk about the future prospects of the EUR/USD pair, let's look at what happened in the futures market and how the positions of Commitment of Traders have changed. The COT report as of February 15 logged a drop in short and long positions. A decline in short positions had been more significant, which led to a rise in the positive delta. The uncertainty over the ECB monetary policy also has had an impact on the pair. Not long ago, Christine Lagarde said that the regulator would take an aggressive stance on monetary policy to curb rising inflation. However, last week, the central bank took a rather different approach. Traders are puzzled. Even despite the growth of the positive delta, the euro sank considerably at the end of the reporting period. The euro also incurred losses due to the risk of a conflict between Russia and Ukraine. The Russian authorities recognized the self-proclaimed "Donetsk People's Republic" (DPR) and the "Luhansk People's Republic". It only intensified geopolitical tensions. Apart from that, the euro/dollar pair is weak amid expectations of rate hikes by the Fed. According to the Fed minutes from the February meeting, the central bank may resort to a more aggressive stance and raise the key rate by 0.5% in March this year, not by 0.25% as initially planned. Such statements are bullish for the US dollar. The COT report revealed that the number of long non-commercial positions decreased slightly to 217,899 from 218,973, while the number of short non-commercial positions fell to 170,318 from 180,131. It seems that traders do not rush to sell the euro. However, they are also not willing to buy it. They are sitting on the sidelines waiting for the developments of the conflict. At the end of the week, the total non-commercial net position increased slightly and amounted to 47,581 versus 38,842. The weekly closing price dropped and amounted to 1.1305 versus 1.1441 a week earlier.
Buyers are gathering strength near the lower border of the sideways channel that originated on February 14. However, they do not make any attempts to push the pair out of the channel yet. Germany and Italy will unveil economic reports today, which may facilitate the growth of the EUR/USD pair. It would be appropriate to open long positions today if the pair declines to 1.1289 in the first half of the day. There should be also the formation of a false breakout. An additional buy signal will appear amid positive the ifo Business Climate Index and the ZEW Indicator of Economic Sentiment surveys. Pay attention to an upward correction in the first half of the day. Apart from a false breakout, the pair needs to show an upward movement. If at the time of the test of 1.1289, the bulls are not active, it is better to postpone long positions. A breakout of this level may lead to another sell-off of risky assets, especially in the case of military operations in Ukraine. In this case, I advise you to buy EUR/ USD only after the price approaches the support level of 1.1245. However, it is recommended to enter the market only if there is a false breakout. Long positions on EUR/USD could be entered on a rebound from the low of 1.1201, or even a lower low of 1.1154, keeping in mind an upward intraday correction of 15-20 pips. An equally important task for the bulls will be to regain control of the 1.1318 level. Yesterday, the price fell to this level. The moving averages are passing in the negative zone. So the bulls need to try really hard to return the pair to this level. A breakout and consolidation above this level as well as the eurozone upbeat data will certainly increase risk appetite. It will give an excellent entry point for long positions. The pair is expected to advance to the highs of 1.1347 and 1.1379. If the price settles above these levels, bulls will take the upper hand. So, it may even reach 1.1414 where I recommend profit taking.
What is needed to open short positions on EUR/USD:
The bearish sentiment prevails in the market now. Any sudden changes in the Russia-Ukraine conflict may increase pressure on risky assets. For this reason, it is better to look for entry points into short positions. It is recommended to sell the euro in the first half of the day after a false breakout at the level of 1.1318. Moving averages are also passing in the negative zone. It gives an excellent entry point into short positions with the prospect of a further decline to 1.1289. The pair already tried to break through this level today during the Asian session. Bulls are unlikely to attack this level. Weak data on Germany and a decrease in inflation in Italy will trigger an increase in the volume of short positions. A breakout and an upward test of 1.1289 will offer an additional entry point. It will also push the pair to a low of 1.1245. If so, the price may slip to 1.1201 where I recommend profit taking. A test of this level will only strengthen the bearish sentiment. If the pair rises during the European session and bears are not active at 1.1318, then it is recommended to sell the euro after a false breakout of 1.1347. It is possible to open short positions on EUR/USD immediately on a rebound from the highs of 1.1379 and 1.1414, keeping in mind a downward correction of 15-20 pips.
Signals of technical indicators
Moving averages
EUR/USD is trading below 30- and 50-period moving averages, indicating the bear market.
Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.
Bollinger Bands
If the pair consolidates above 1.1289, it is likely to edge higher. If this scenario comes true, 1.1347 will act as resistance.
Definitions of technical indicators
- Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
- Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
- MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
- Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
- Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements.
- Non-commercial long positions represent the total long open position of non-commercial traders.
- Non-commercial short positions represent the total short open position of non-commercial traders.
- The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.
