To open long positions on EUR/USD, you need:
Low volatility and lack of activity on the part of players amid the celebration of Martin Luther King Day in the United States - this was the main reason for the lack of signals to enter the market on Monday, January 18. The only thing that was formed in the afternoon was a false breakout and being able to return to the 1.2064 level. However, it was very difficult to determine this signal on the "live" market, so I missed it.
Before talking about the prospects for the pair's movement, let's see what happened in the futures market and how the Commitment of Traders (COT) positions changed. Judging by the presented chart, the euro's decline at the beginning of this year had a very strong impact on the positions of traders, returning the appeal of risky assets. The COT report for January 12 recorded a sharp increase in long positions and a reduction in short ones. Buyers of risky assets continue to believe in a bullish trend, especially after such a large decline in the euro earlier this year, which made it possible for new large players to enter the market. Vaccination against the first strain of coronavirus continues in Europe, leading to new buyers for the euro. The likely approval of the next $1.9 trillion bailout plan for the US economy is likely to further erode the dollar. A limiting factor for the euro's growth is the risk of extending quarantine measures in February this year, both in Germany and in a number of other European countries. Thus, long non-commercial positions increased from 224,832 to 228,757, while short non-commercial positions fell from 81,841 to 72,867. Due to the sharp drop in short positions, the total non-commercial net position increased from 143,902 to 155,890 a week earlier.
Now for the technical picture of the pair. EUR/USD buyers must protect the support level of 1.2064, which was rather widespread yesterday. But, despite this, the actions of buyers are clearly visible on larger timeframes, and they coped with their task, not allowing a real breakdown of this range. If the pair falls to 1.2064 in the first half of the day, forming a false breakout there creates a buy signal. If bulls are not active at this level, and the MACD indicator has already returned to zero, then it is best to postpone long positions until the test of the next monthly low in 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 return control to the 1.2102 level, around which the main trade is currently being conducted. A breakout and being able to settle above 1.2102 and testing this area from top to bottom creates a convenient entry point into long positions in hopes of returning and updating resistance at 1.2142, where I recommend taking profits. The 1.2142 area will be the next target for the middle of the week.
To open short positions on EUR/USD, you need:
The initial task of the sellers is to protect resistance at 1.2102, in the area of which the moving averages also pass, playing on the side of the bear market. Forming a false breakout there will result in bringing back the downward trend, and its purpose is for the quote to surpass support at 1.2064, which was not done yesterday. The lower limit of the current descending price channel is just below this area. Getting the pair to settle below this range and testing it from the bottom up will open a direct road to a low of 1.2026, where I recommend taking profits. Bears will still aim for 1.1986, which will be the defining level in the current downward momentum. Today there are a number of important fundamental reports on the eurozone economy, which is expected to be rather negative, and may put even more pressure on the euro. If the bulls find the strength in themselves and manage to surpass resistance at 1.2102, I recommend not to rush to sell. The optimal scenario would be a test of the 1.2142 high, from where you can sell EUR/USD immediately on a rebound, counting on the pair's correction down by 20-25 points.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which indicates that sellers are in control of the market.
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 upper border of the indicator in the 1.2102 area will lead to a new wave of euro growth. A breakout of the lower border of the indicator around 1.2060 will increase the pressure on the pair.
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.
