To open long positions on EUR/USD, you need:
The euro was sold all day last Friday. I highlighted the area where the first breakdown of the 1.2144 level occurred on the 5-minute chart, afterwards the pair returned several times and tested this range from the bottom up, which resulted in creating a signal to sell the euro. Support at 1.2113 was the target, which is where the downward movement stopped. They focused on this level in the afternoon. Its breakout and test from the bottom up created another sell signal for EUR/USD, which pulled down the pair to a new low of 1.2080, from where I recommended opening long positions with a view to a slight correction, which happened.
The technical levels have slightly changed at the moment. The situation in Germany and the strengthening of the quarantine, along with the expected unrest during the inauguration of Joe Biden, are supporting the US dollar, which may continue to strengthen against the euro. The task of the EUR/USD buyers is to protect the support level of 1.2064, and forming a false breakout on it will create a buy signal. Temporarily stopping the downward movement in the first half of the day was shown by the MACD indicator, which is in the oversold zone. In the absence of bullish activity, it is best to postpone long positions until the test of the next monthly low in the area of 1.2026 and 1.1986, from where you can buy EUR/USD immediately on a rebound, counting on a correction of 20-25 points within the day. An equally important task for the bulls is to regain control of the 1.2102 level, where the moving averages pass, playing on the side of the euro sellers. A breakout and being able to settle above 1.2102 and testing this area from top to bottom creates a convenient entry point to long positions in hopes to return and update resistance at 1.2142, where I recommend taking profits.
To open short positions on EUR/USD, you need:
Sellers of the euro will focus on the breakout and being able to settle below support at 1.2064. Weak fundamental data on the Italian economy will harm the euro, but it will not provide optimism to buyers either. A breakout and being able to test this level from the bottom up, similar to sales, which I analyzed above, will create a new signal to open short positions and open a direct path to the low of 1.2026, where I recommend taking profits. A more distant target will be 1.1986, but we can hardly expect such an active fall at the beginning of the week. An equally important task for the bears is to protect resistance at 1.2102. If EUR/USD recovers, forming a false breakout there will produce a signal to open short positions in sustaining the downward trend. If sellers are not active when resistance has been tested at 1.2102, it is best to refuse to sell. In this case, you can take a closer look at short positions after updating the high of 1.2142, or sell EUR/USD immediately on a rebound from the 1.2179 level, counting on a downward correction of 20-30 points within the day.
Let me remind you that the Commitment of Traders (COT) report for January 5 recorded an increase in both short and long positions. Buyers of risky assets continue to believe in a bullish trend despite the euro's decline at the beginning of this year, which will make it possible for new major players to enter the market. News of ongoing vaccinations against the first strain of coronavirus Europe will also support euro buyers. Pressure on the euro will come from isolation measures and ongoing quarantines in many European countries. Thus, long non-commercial positions rose from 222,443 to 224,832, while short non-commercial positions jumped from 78,541 to 81,841. Due to the larger increase in short positions, the total non-commercial net position decreased from 143. 902 to 142,991 weeks earlier. The insignificant change in the delta at the beginning of the year hardly indicates a change in the tactics of euro buyers, who count on the euro's growth after the abolition of quarantine measures in the EU countries.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which indicates a succeeding decline for the euro.
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
A breakout of the lower border of the indicator around 1.2050 will increase pressure on the euro. In case of growth, the upper border of the indicator in the 1.2142 area will act as resistance.
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.
