Necessary conditions to open long positions on the EUR/USD pair:
Yesterday, two signals to enter the market appeared only in the second part of the day. Let's take a close look at the entry points on the 5-minute chart. The pressure on the euro had risen even before the announcement of the Fed's decision. This was triggered by the ECB saying that it might take measures to stem the euro's rally. As a result, the single currency broke the support level of 1.2110, thus forming the first signal to open short positions. Bears hit a new key target near 1.2055. I recommended buying the euro at this level after a rebound. As a result, this brought 100 pips of income.
Today is an important day as the US is expected to disclose its GDP data for the fourth quarter of 2020. Even weak figures may not influence the US dollar, as the EU economic situation is significantly worse. Bulls should regain control over the resistance level of 1.2104. A downward break of this level may lead to an upward correction towards the resistance level of 1.2145. I recommend taking profit at this level.
Moving averages also cross this level. If the price breaks this range, the euro is likely to consolidate and continue moving towards 1.2181. According to the alternative scenario, the euro/dollar pair may decline in the first part of the day after the publication of the consumer confidence index data in the eurozone. In this case, traders should wait for a false break of 1.2061 and open buy positions on the euro. Short positions could be opened just after a rebound from the yearly low near 1.2026. The target is an intraday upward correction of 20-25 pips.
Necessary conditions to open short positions on the EUR/USD pair:
Bears should keep control over the level of 1.2104. However, only a false break in the first part of the day will form an entry point for short positions. The target is a downward correction of the euro that began yesterday. At the same time, bears should try to break the yearly low of 1.2061.
A downward break of this level will intensify pressure on the euro/dollar pair, thus forming a perfect signal for short positions with the target of the 1.2026 support level.
In the best-case scenario, bears may push the euro towards the low of 1.1986. There, I recommend fixing profit. However, a lot will depend on the US GDP data.
If the euro/dollar pair rises and bears show no activity near the resistance level of 1.2104 in the first part of the day, it is better not to open sell positions and wait until the price hits the high of 1.2145 again. Below this level, there are moving averages that support sellers.
It is possible to open short positions in this area only after a false break. Sell positions on the euro/dollar pair could be opened just after a rebound from 1.2181 with the intraday downward correction of 20-25 pips.
The Commitment of Traders report from January 19 unveiled a sharp rise in long positions and a small increase in short positions. Most buyers of risk assets believe in the bullish trend despite all fundamental data and restrictive measures in most European countries, which may last until February.
Demand for risk assets advances amid a significant downward correction from the highs of this year. This allows new big players to enter the market.
Problems with vaccination in Europe and weak fundamental data prevent buyers of risk assets from increasing the volume of trades. However, market participants remain positive amid a possible lifting of lockdown measures.
The euro's rally is also halted by a risk that the EU authorities may prolong the quarantine in February. The COT report disclosed that long non-commercial positions rose from 228,757 to 236,533, while short non-commercial positions increased only from 72,867 to 73,067. Due to the sharp increase in long positions, the total non-commercial net position jumped to 163,466 from 155,890 a week earlier.
Signals of indicators:
Moving averages
The trade is performed below the 30- and 50-day moving averages. This maintains pressure on the euro in the short term.
The period and prices of the moving averages are considered by the author on the hourly chart and differ from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
A break of the lower limit of 1.2070 will increase pressure on the euro. The rally could be curbed by the upper level of the indicator near 1.2135.
Description of indicators
Moving average (moving average, determines the current trend by smoothing out volatility and influence of news). Period is 50. It is marked in yellow on the chart.
Moving average (moving average, determines the current trend by smoothing out volatility and influence of news). Period is 30. It is marked in green on the chart.
MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period is 12. Slow EMA period is 26. SMA period is 9
Bollinger Bands (Bollinger Bands). Period is 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 open long position of non-commercial traders.
Short non-commercial positions represent the total of open short positions of non-commercial traders.
Total non-commercial net position is the difference between short and long positions of non-commercial traders.
