To open long positions on EUR/USD, you need:
Yesterday, a fairly good signal to open long positions appeared in the afternoon. Let's take a look at the 5-minute chart and break down the trade. After surpassing the 1.2150 level in the first half of the day, we had to wait a long time for a downward correction and test this range upside down. However, a good entry point into long positions appeared in the middle of the US session. Given the intraday volatility, a 20 point rally from this level can be considered a success.
Today, serious changes are unlikely to occur in the first half of the day, since important fundamental reports will not be released today, and traders will focus on the Federal Reserve's meeting on interest rates. Buyers will shift their entire focus on resistance (1.2181) during the European session. Surpassing this range and testing it 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. Buyers are still aiming for a distant target like 1.2260, but such a breakthrough will only be possible after Fed Chairman Jerome Powell's speech, provided that he touches on the topic of fiscal stimulus and once again calls for pumping the American economy with money. If the bulls in the European session fail to do anything at the 1.2181 level again, then there is a risk of a downward correction to the area of the middle of the horizontal channel at 1.2145. Forming a false breakout there will be a signal to open long positions in sustaining the trend. If buyers are not noticeably active in the 1.2145 area, it is best to wait for EUR/USD to fall to a more powerful area like 1.2110, where the lower border of the new descending channel from January 22 lies. From it, you can open long positions immediately on a rebound, counting on an upward movement of 20-25 points within the day.
To open short positions on EUR/USD, you need:
Bears must maintain control over the 1.2181 level, and forming the next false breakout there will become an additional entry point to short positions in hopes of a downward correction of the euro. An equally important task is to return to the middle of the horizontal channel at 1.2145, where the moving averages are located, playing on the side of the euro buyers. Therefore, during the initial test of this level, the pair will rebound slightly to the upside. A breakout and being able to test the 1.2145 level from the bottom up, as well as the breakout of the moving averages, creates an excellent signal to open short positions in hopes of a larger downward correction to the support area of 1.2110, behind which an active opposition will unfold once again. The lower border of the new descending channel is also located there. We can only expect to surpass 1.2110 following Powell's speech, who can give a positive assessment of the prospects for the recovery of the US economy. Given the euro's growth and the absence of bears' activity in the resistance area of 1.2181 in the first half of the day, I recommend postponing short positions on the euro and wait for an update of the 1.2220 high. You can open shorts from there if a false breakout is formed. I recommend selling EUR/USD immediately on a rebound only from the 1.2260 level, counting on a downward correction of 20-25 points within the day.
The Commitment of Traders (COT) report for January 19 recorded a sharp increase in long positions and a slight increase in short ones. Despite all the incoming fundamental data and the preservation of a number of quarantine restrictions until February this year in many European countries, buyers of risky assets continue to believe in a bullish trend. Demand especially appears with every significant downward correction from this year's highs, which allows new major players to enter the market. Vaccination disruptions in Europe are preventing risky asset buyers from gaining more positions, as is the eurozone's weak fundamentals. However, the prospect of canceling quarantine will clearly keep the market positive. The restraining factor for the euro's growth is still the risk of extending quarantine measures in February this year. The COT report indicated that long non-commercial positions rose from 228,757 to 236,533, while short non-commercial positions only increased from 72,867 to 73,067. Due to the sharp rise in long positions, the total non-commercial net position increased to 163,466 against 155,890 a week earlier.
Indicator signals:
Moving averages
Trading is carried out just above 30 and 50 moving averages, which indicates the uncertainty of the future market direction.
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 area of 1.2181 will lead to a new wave of euro growth. A breakout of the lower boundary at 1.2130 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.
