To open long positions on EUR/USD, you need:
Yesterday's data on inflation in the US led to the collapse of the EUR/USD pair. Let's take a look at the 5-minute chart and talk about what signals were generated and where you could enter the market. In the first half of the day, buyers form a false breakout at the level of 1.2119, which leads to the formation of a long entry point. After rising by 25 points, the euro stopped, and traders began to wait for data on the American consumer price index. The report led to an immediate drop in the pair, however, the bulls quickly recovered and returned EUR/USD to the resistance area of 1.2149. The formation of a false breakout there led to the formation of a sell signal, since the data was still on the side of the US dollar. The fall of the euro in the afternoon and a return under the level of 1.2119 both led to a subsequent decline to the support area of 1.2060, which I paid attention to many times. Unfortunately, I did not wait for the reverse test of the level 1.2119 from the bottom up (I highlighted the scenario on the chart), so I did not open additional short positions there. There were no purchases on the rebound from the support at 1.2060, since we did not reach it by only 5 points.
Today, the day promises to be less volatile, so we can expect the continuation of the decline in the European currency along the trend that was formed yesterday. Considering that important fundamental data is not released in the first half of the day, the bearish scenario is more attractive. To prevent this, the bulls need to protect yesterday's support at 1.2066, which was formed in the afternoon. Only the formation of a false breakout will there be a signal to open long positions in the expectation of a recovery in the euro in the short term to the resistance area of 1.2108, where I recommend taking profits. Moving averages, playing on the side of sellers, also pass there, which will limit the upward potential. Only a breakout and consolidation above 1.2108 with a reverse test from top to bottom can form a signal to open new long positions in order to form a new upward trend in the area of a high like 1.2149. The next target will be the level of 1.2180, but one can hardly bet on such an active growth of the pair by the end of this week. If the bulls do not show any activity in the area of 1.2066 in the first half of the day, the bulls will most likely prefer not to force events and retreat to larger support levels before the data on the US labor market. Therefore, we can expect a decline in EUR/USD. In this case, I recommend opening long positions only for a rebound from the minimum of 1.2035, counting on an upward correction of 20-25 points within the day.
To open short positions on EUR/USD you need:
The bears will struggle to continue the downward correction, and for this, they need to take control of the large support level 1.2066. The lack of data on the eurozone countries will play into the hands of euro sellers, as yesterday's reports on US inflation, which turned out to be much higher than economists' forecasts, are still alive in their hearts. The breakout and test of the level of 1.2066 from the bottom up on the volume creates a signal to sell the euro in order to continue the downward trend towards the area of the low of 1.2025. The next target will be the larger support at 1.1988, which coincides with the lows of this month, where I recommend taking profits. In case of an upward correction of the pair in the first half of the day, it is best not to rush to sell: the formation of a false breakout in the resistance area of 1.2108 generates a new signal to sell the euro with the aim of further decreasing according to yesterday's trend. If the bears are not active at this level, I recommend postponing short positions immediately to a rebound from a large resistance at 1.2149, counting on a downward correction of 15-20 points within the day.
The Commitment of Traders (COT) report for May 4 showed that there was an increase in both short and long positions, but now there were more buyers, which led to an increase in the overall non-commercial position. Last week, everyone was waiting for data on the US labor market and hoped that risky assets would continue to grow, which is what happened. Therefore, the growth in long positions outweighed short ones. The bad data further proves that the Federal Reserve will continue to stay on track even with a sharp economic surge. This strategy will keep the pressure on the US dollar and will allow further build-up of long positions in risky assets, which will push EUR/USD upwards. The COT report indicated that long non-commercial positions jumped from 200,415 to 206,472, while short non-commercial positions rose from 119,448 to 121,643. This indicates an influx of new buyers with the expectation that the euro's growth will continue, however with each renewal of the high, the number of people willing to sell increases. The more the euro will show growth this month, the stronger the influx of new sellers will be, as changes in the Fed's monetary policy have not been canceled this year. The total non-commercial net position increased from 80,967 to 84,829. The weekly closing price, on the contrary, declined from 1.20795 to 1.20591.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which indicates a further decline in the euro along the newly formed trend.
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
In case of a decline, the pair will be supported by the lower border of the indicator in the area of 1.2045. Growth will be limited in the area of the upper border of the indicator in the area of 1.2130.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing volatility and noise). Period 30. It is 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
- Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who 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.
- The total non-commercial net position is the difference between short and long positions of non-commercial traders.
