EUR/USD hourly chart
On Monday, EUR/USD continued a downward movement from Friday, but then reversed sharply to the upside. However, all the movements of the pair look impressive only on the chart. In fact, the pair passed the range of only 70 pips during the day which is an average volatility range. Nevertheless, the pair broke through the descending trendline, thus bringing back the uptrend. As you can see, there was no new round of correction to the ascending trendline. We would like to remind beginners that this is not the best time to trade. Although the trajectory of the pair is more or less clear, two ascending trendlines have been canceled. However, another breakthrough of the trendline suggests the beginning of an upward movement. In our last review, we recommended keeping short positions open on Friday as we hoped that the price would move another 20-30 pips down. As a result, since the beginning of the session on Monday, the pair has moved lower by 25 pips. Thus, novice traders could have earned about 30-40 pips following a sell signal on Friday. We recommended buying the pair near the lower trendline, but the price did not even reach it. You could also open long positions after the price had settled above the descending trendline, but we did not mention this signal in our previous analysis. Those who have opened long positions have gained 15 pips today.
On February 22, the speech of ECB President Christine Lagarde was the only important event. The head of the central bank said the €1.85 trillion PEPP program (program aimed at countering the economic consequences of the pandemic) would help support the EU economy. Christine Lagarde did not mention anything else that could influence the market. However, even this statement is not enough to explain the strengthening of the euro. Most likely, the new rise in the euro is related to technical factors.
On Tuesday, the data on consumer price index for January will be published in the EU. The US will release the report on consumer confidence for February. Although the report on inflation is considered quite important, traders are unlikely to react to it. For your reference, a month earlier this indicator rose from -0.3% y/y to 0.9% y/y, but traders downplayed this factor. In general, markets continue to ignore macroeconomic statistics.
Possible scenarios on February 23
1) Trading long is relevant now as we have two trendlines on the chart. However, it is recommended to trade only when clear buy signals are formed. This could be a price rebound from any trendline or an upward reversal of the MACD indicator after a correction and when it reaches the zero level. In this case, targets can be set at the resistance levels of 1.2147, 1.217, and 1.2209. This will depend on where the signal will be generated.
2) Trading short is not relevant at the moment. If the price consolidates below the first trendline, then it is recommended to open short positions with the targets at the support levels of 1.2085 and 1.2052. However, this signal will not be strong enough if the pair moves far to the upside within the next 10-12 hours.
On the chart
Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trendlines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator (14, 22, and 3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend patterns (channels and trendlines).
Important announcements and economic reports that you can always find on the economic calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommend trading as carefully as possible or exit the market in order to avoid sharp price fluctuations.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
The material has been provided by InstaForex Company - www.instaforex.com