To open long positions on EUR/USD, you need:
Yesterday, a huge number of signals for selling the euro were formed, but they were all realized only in the afternoon. Let's look at the 5-minute chart and figure out what happened. In my morning forecast, I paid attention to the level of 1.1265 and advised you to make decisions on entering the market. The bulls' low activity near this range in the first half of the day made it possible for bears to form several good entry points into short positions. However, the pair sank well in the afternoon after the report on manufacturing activity in the United States was released, which made it possible to take about 30 points of profit from the market.
Today, the focus will be on important data on the consumer price index of the eurozone countries. It is expected that inflationary pressure in the eurozone will decrease slightly, which may negatively affect the dynamics of the pair's growth in the first half of the day.
An important task is to protect the support of 1.1255, where the moving averages are, while playing on their side. Given that the European Central Bank will hold a meeting tomorrow, it is quite possible that demand for the euro will return from this level. Forming a false breakout at 1.1255 creates an excellent entry point into long positions in continuation of the upward correction with the gradual formation of a new bullish trend. An equally important task for euro bulls is to control the resistance of 1.1297. A breakthrough and a reverse test from the top down of this range, together with strong inflation data in the eurozone, will lead to another buy signal and open up the possibility of recovery to the area: 1.1328. A more distant target will be the level of 1.1358, but it is possible to count on updating this range only with a very strong increase in inflation and increased expectations of a more aggressive policy on the part of the ECB. I recommend taking profits there.
If the pair declines during the European session and there is no bull activity at 1.1255, the pressure on the euro may seriously increase. In this case, it is best to postpone long positions to a low of 1.1223. However, I advise you to open long positions there when forming a false breakout. It is possible to buy the euro immediately for a rebound from the level of 1.1186 with the goal of an upward correction of 20-25 points within the day. Much will depend on the release of data on the American labor market. A report from ADP will be published today.
To open short positions on EUR/USD, you need:
Bears remain on the sidelines, focusing on tomorrow's ECB meeting. To stop the upward correction, you need to try very hard not to miss the 1.1297 level today. The formation of a bullish divergence on the MACD indicator will be an additional signal to open short positions in order to pull EUR/USD to the area of 1.1255.
A breakthrough in this area will depend entirely on the market's reaction to the inflation data for the eurozone. If the growth slows down, we will see a breakthrough of 1.1255. A reverse test from the bottom up of this range will provide another signal to open short positions with the prospect of falling to large lows: 1.1223 and 1.1186. A more distant target will be the 1.1148 area, but it will be available only in case we receive very strong data on the American economy. I recommend taking profits there.
In case the euro grows and the bears are not active at 1.1297, it is best not to rush with short positions. The optimal scenario will be short positions when forming a false breakout in the area of 1.1328. You can sell EUR/USD immediately on a rebound from 1.1358, or even higher - around 1.1390 with the goal of a downward correction of 15-20 points.
I recommend for review:
The Commitment of Traders (COT) report for January 25 showed that long positions had increased while short ones decreased, which led to a further increase in the positive delta. The demand for risky assets will continue to persist, because even after the results of the Federal Reserve meeting, where there were clear hints of an increase in interest rates in March 2022, the market did not react with a serious drop in risky assets, and the changing balance of power speaks for itself. This week, everyone is waiting for the results of the European Central Bank meeting, at which a decision on monetary policy will be made. Some traders expect that the central bank may resort to more aggressive statements aimed at policy changes in the near future and to abandon measures to support the economy due to the threat of high inflation. However, most analysts do not expect changes from the ECB. Much will depend on whether the ECB agrees to fully complete its emergency bond purchase program as early as March this year, or not. If so, the demand for the euro will only increase, since such actions will sooner or later lead to an increase in interest rates in the eurozone. The COT report indicates that long non-commercial positions rose from the level of 211,901 to the level of 213,408, while short non-commercial positions fell from the level of 187,317 to the level of 181,848. This suggests that traders continue to build up long positions on the euro in hopes of building an upward trend. At the end of the week, the total non-commercial net position remained positive and amounted to 31,569 against 24,584. But the weekly closing price decreased and amounted to 1.1323 against 1.1410 a week earlier.
Indicator signals:
Trading is above the 30 and 50 daily moving averages, which indicates an upward correction for the pair.
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
Crossing the lower border of the indicator in the area of 1.1245 will lead to a fall in the euro. Crossing the upper border of the indicator in the area of 1.1280 will lead to an increase in the euro.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in 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.
