Long positions on EUR/USD:
In the first half of the trading day, the eurozone published data on business activity in the manufacturing and services sectors. Traders were rather in awe of such positive results and the euro strengthened versus the US dollar. Nevertheless, EUR bulls encountered resistance at 1.1263. To better understand what has happened, let us analyze the M5 chart. A false breakout was formed when the price returned below the range it failed to break above. Consequently, a sell signal was generated. Notably, there is a lack of bullish activity at this level. So, an upward correction may well extend in the second half of the day.
The United States will present its business activity data today as well. Experts project an increase in figures. Even if the results come lower, the euro is likely to rise. Anyway, long positions could be opened in case of a downward correction and the formation of a false breakout at 1.1230. If so, a strong entry point will be produced and the target will be seen at the resistance level of 1.1273. The moving averages located there are limiting the pair's upside potential. Another important task for bulls will be to break through this range. A test of the level of 1.1273 top/bottom is likely to generate an excellent entry point. In such a case, the target will be seen at 1.1317 and 1.1259 where traders should consider locking in profits. Alternatively, if the price falls to 1.1230 and US macroeconomic data comes better than forecast, traders should not rush to open long positions. It could become possible to go short after a false breakout at 1.1193. Long positions could be opened after a bounce from the low of 1.1155 or 1.1106, allowing a 15-20 pips intraday correction.
Short positions on EUR/USD:
As long as the pair is traded below 1.1273, the signal to sell the euro produced in the morning will remain relevant. The formation of a false breakout at 1.1273 in the second half of the day will become an excellent sell entry point. If so, bears' task will be to break and consolidate below 1.1230. In case business activity data in the US comes out better than forecast, pressure on EUR/USD will increase, while a breakout and a test of the level of 1.1230 bottom/top could produce a new sell signal with the targets at the low of 1.1193 and 1.1155 where traders should consider locking in profits. In case of a lack of bearish activity at 1.1273 in the second half of the day, short positions could be opened until the price reaches the high of 1.1317. The formation of a false breakout there will become a good entry point to sell the euro. Traders could open short positions on a rebound to the high of 1.1359, allowing a downward correction of 15-20 pips.
The COT report (Commitment of Traders) as of November 16 logged an increase in both short and long positions. At the same time, the number of short positions exceeded that of long ones, which led to a negative delta. Although it continues to hover around the zero level, it does not help the euro buyers in any way. The risk of another surge in coronavirus cases and the possibility of a lockdown in the EU have increased pressure on the euro that has not yet recovered from the ECB's dovish stance on monetary policy even despite growing inflation. Meanwhile, Austria has brought back quarantine restrictions and Germany is contemplating taking the same measure. At the same time, high inflationary pressure in the US continues to boost the greenback. Many investors expect the Federal Reserve to raise interest rates earlier next year. The November COT report showed an increase in long non-commercial positions to 198,181 from 192,544 and a rise in short non-commercial positions to 202,007 versus 188,771. By the end of the week, the total non-commercial net position plunged to -3,826 from 3,773. The weekly closing price dropped to the level of 1.1367 versus 1.1587.
Indicator signals:
Moving averages
Trading is carried out slightly below MA(30) and MA(50), which indicates the possibility of a bearish euro in the second half of the day.
Note: Periods and prices of moving averages are viewed by the author of the article on the H1 chart and differ from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
In case of a breakout at 1.1270, the upper band, the euro is likely to increase. Meanwhile, a breakout at 1.3670, the lower band, could increase pressure on the pair.
Description of indicators
- Moving average determines the current trend by smoothing volatility and noise. Period = 50. Marked in yellow on the chart.
- Moving average determines the current trend by smoothing volatility and noise. Period = 30. Marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence) Fast EMA period = 12. Slow EMA period = 26. SMA period = 9
- Bollinger Bands. Period = 20
- Nonprofit traders are speculators 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.
- Non-commercial short 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.
