To open long positions on EUR/USD, you need:
Yesterday, several signals were formed to sell the euro. Let's look at the 5-minute chart and figure out what happened. In my morning forecast, I drew attention to the importance of eurozone inflation and the 1.1297 level, and also advised you to make decisions on entering the market. The sharp inflationary jump in the eurozone in January this year to 5.1% per annum surprised many economists who expected it to decrease to 4.4%. Against this background, the bulls achieved a breakthrough of 1.1297 resistance, but it never reached the reverse test of this level from top to bottom. As a result, there were no signals to enter the market in the first half of the day. During the US session, it was possible to observe the active movement of the pair up to 1.1328. Several unsuccessful attempts to settle above this range led to signals to sell the euro. As a result, the downward movement amounted to more than 30 points.
This morning, the focus will be placed on important data on the PMI index for the eurozone services sector, as well as on the European Central Bank's decision on interest rates. The fact that inflationary pressure in the eurozone turned out to be much higher than expected at the beginning of this year once again proves the need for more active opposition from the ECB. Today's decisions can have a very serious impact on the market, so I recommend that you pay special attention to them.
The upward trend in the euro continues, and today's press conference of ECB President Christine Lagarde may serve as another driver of euro growth. An important task for bulls is to protect the support of 1.1291, where the moving averages are, while playing on their side. Forming a false breakout at 1.1291 creates an excellent entry point into long positions in continuation of the upward trend. An equally important task for euro bulls is to control the resistance of 1.1328, above which it was not possible yesterday even after very weak statistics on the US labor market from ADP. A breakthrough and a reverse test from the top down of this range, together with strong data on the eurozone producer price index, the PMI index for the services sector and the composite PMI index of the eurozone, will lead to another buy signal and open the possibility of recovery in the area: 1.1358 and 1.1390. The level of 1.1419 will be a more distant target, but it is only possible to count on an update of this range if Lagarde makes hawkish statements after the press conference. I recommend taking profits there.
If the pair declines during the European session and there is no bull activity at 1.1291, the pressure on the euro may seriously increase. In this case, it is best to postpone long positions to a low of 1.1258. However, I advise you to open long positions there when forming a false breakout. You can buy the euro immediately for a rebound from the 1.1223 level with the goal of an upward correction of 20-25 points within the day.
To open short positions on EUR/USD, you need:
Bears remain on the sidelines, focusing on today's ECB meeting. To stop today's upward trend, you need to try very hard not to miss the level of 1.1328. Bullish divergence forming on the MACD indicator can help, although yesterday it was not possible to achieve a downward correction based on this indicator. Forming a false breakout at 1.1328 will be a signal to open short positions in order to pull EUR/USD to the area of 1.1291. A breakthrough of this area depends entirely on the market's reaction to the inflation data for the eurozone, as well as on the PMI report for the services sector.
If the growth slows down, we will see a breakdown of 1.1291. 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: 1.1258 and 1.1223. The 1.1186 level will be a more distant target, but it is available only if the ECB maintains an ultra-soft policy following the results of today's meeting. I recommend taking profits there.
In case the euro grows and the bears are not active at 1.1328, 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 1.1358. You can sell EUR/USD immediately on a rebound from 1.1390, or even higher - around 1.1419 while aiming for 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 1.1291 will lead to a fall in the euro. A breakthrough of the upper border of the indicator in the area of 1.1320 will lead to an increase for 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.
