To open long positions on EUR/USD, you need:
Several good market entry points were created yesterday. Let's take a look at the 5-minute chart and break down the trades. Buyers did not show much enthusiasm in the first half of the day, after the euro fell to the support area of 1.2130, which led to a breakdown of this range. The eurozone inflation data confirmed the complexity of the situation and the likelihood of increased deflationary pressures, which made it possible for sellers to maintain control over the 1.2130 level. Its reverse test created an excellent entry point for short positions, and after a while we saw an update of support at 1.2089, where I recommended taking profits. Forming a false breakout at this level immediately after Joe Biden's speech resulted in creating a buy signal. I paid close attention to this moment in yesterday's forecast for the US session. As a result, the bulls returned back to the resistance of 1.2130, which brought about 50 more points in profit.
Today's focus will be on the 1.2130 level, on which the pair's succeeding direction depends. The European Central Bank will announce its decisions on interest rates and a bond buyback program in the first half of the day. There will be no changes, which can strengthen the euro's position, but only if ECB President Christine Lagarde gives a positive assessment of the prospects for the European economy. A breakout and getting the pair to settle above resistance at 1.2130 and being able to test it from top to bottom creates a good signal to open long positions in order for the euro to rise to a 1.2174 high, which we did not reach yesterday. A breakthrough of this range will only be possible after reports like the indicator of consumer confidence in the eurozone and the US labor market data, which is experiencing problems, have been released in the afternoon. Testing the 1.2174 area from top to bottom creates a good signal to enter long positions, in hopes to reach a high of 1.2220, where I recommend taking profits. If the bulls are unable to do anything in the support area of 1.2130 in the first half of the day, then it is best not to rush to buy, but wait for a downward correction to a more powerful area of 1.2089, from where you can open long positions immediately on a rebound, counting on an upward movement of 20-25 points within the day. Surpassing this level will create a new bear market.
To open short positions on EUR/USD, you need:
Sellers of the euro will focus on forming a false breakout in the resistance area of 1.2130. However, only a negative rhetoric from Lagarde can put the necessary pressure on the euro and lead to implementing this scenario, which will increase the pressure on the pair and open a direct road to the 1.2089 area. A lot depends on this range as it also includes the pair's succeeding growth, therefore, its breakout will result in removing a number of the bulls' stop orders and pull down EUR/USD to 1.2055, where I recommend taking profits. A new low at 1.2026 will still be a goal. If the euro rises above the 1.2130 level in the first half of the day, it is best not to rush to sell, but wait for an update of resistance at 1.2174, where forming a false breakout will be a signal to open short positions. I recommend selling EUR/USD immediately on a rebound from the 1.2220 area, counting on a downward correction of 20-30 points within the day.
The Commitment of Traders (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.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates an attempt by euro buyers to return to 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 1.2130 area will lead to a new wave of euro growth. A breakout of the lower boundary at 1.2089 will increase 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.
