To open long positions on EUR/USD, you need:
No more signals to enter the market yesterday afternoon, and only a purchase in the 1.2026 level made it possible to take around 25 points of profit. Let's take a look at the chart and break down the entry point. We could clearly see that the euro rapidly fell after the price broke through support at 1.2060, although the report on the eurozone GDP for the fourth quarter turned out to be much better than the economists' forecasts. It was not possible to open short positions in the 1.2060 area, since this level was not tested. The 1.2026 level was a good entry point for long positions, which is where I told you to buy the euro in my morning forecast. Buying immediately on the rebound made it possible for us to wait for an upward correction in the pair. Then the bears tried to surpass this area in the afternoon, but failed to stay below it.
Quite important reports on activity in the services sector of the eurozone countries for January will be released today. In case we receive disappointing data and the euro falls once again, buyers will need to focus on protecting support at 1.2018, on which the succeeding upward correction of EUR/USD depends. The lower border of the descending channel is below this level, being able to go beyond it will only increase the pressure on the pair. A good fundamental report from the eurozone, indicating an improvement in the situation in the services sector, which is unlikely, will make it possible for a false breakout to form in the support area of 1.2018, which creates a good entry point into long positions. If buyers are not active at this level, I recommend postponing long positions until the low of 1.1986 has been tested, from where you can buy the euro immediately on a rebound, counting on an upward correction by 15-20 points, as was the case yesterday with the entry point at 1.2026. An equally important task for the bulls is to settle above resistance at 1.2053, around which the trade is now being conducted. A breakout and having the pair settle at this level along with being able to test it from top to bottom creates a good signal to buy the euro in order to reach the weekly high in the 1.2088 area, where I recommend taking profit. A distant target will be the 1.2129 level.
To open short positions on EUR/USD, you need:
Forming a false breakout in the resistance area of 1.2053 will be the initial task in the first half of the day. Weak data on the eurozone will certainly allow the bears to implement this scenario, which will lead to forming a signal to enter short positions with the main goal of returning to the support area of 1.2018, which bears failed to surpass yesterday. A breakout and being able to test this level from the bottom up will create a new entry point for short positions in order to sustain the downward trend, which will pull down EUR/USD to this year's new low located in the 1.1986 area, where I recommend taking profit. If, we observe an upward correction in the first half of the day, and the bears are not active in the resistance area of 1.2053, then it is best to postpone short positions until the high of 1.2088 has been tested, from where you can sell EUR/USD immediately on a rebound in order to pull it down by 15-20 points within the day. However, it is worth remembering that a disappointing report on the services sector can be a trap for speculators who will start selling the euro, and the big players will buy it. Therefore, do not be surprised if the euro starts to strengthen after bad reports.
The Commitment of Traders (COT) report for January 26 recorded a sharp increase in long positions and a reduction in short ones. The incoming data is limiting the euro's upward potential, as is the fact that vaccinations in the euro area will proceed at a slower pace than expected. This will certainly affect the GDP for the first quarter of 2021, but it is unlikely to be able to seriously affect the medium-term prospects for the EUR/USD recovery. With each significant downward correction in the pair, the demand for the euro returns, and the lower the rate, the more attractive it will become for investors. The prospect of canceling quarantine will clearly keep the market upbeat in the future. However, the risk of extending quarantine measures in February is still a restraining factor for euro growth. The COT report indicated that long non-commercial positions rose from 236,533 to 238,099, while short non-commercial positions fell from 73,067 to 72,755. Due to continued growth in long positions, the total non-commercial net position rose to 165,344 against 163,466 a week earlier.
Indicator signals:
Moving averages
Trading is carried out just below the 30 and 50 moving averages, which indicates pressure on 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 D1 daily chart.
Bollinger Bands
A breakout of the upper border of the indicator around 1.2075 will lead to a new wave of euro growth. In case the pair falls, support will be provided by the lower border of the indicator at 1.2005.
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.
