To open long positions on EUR/USD, you need:
The afternoon was not particularly productive due to low market volatility. Although the report on the state of the US economy turned out to be better than economists' forecasts, this kept the EUR/USD pair from resuming the downward trend. Several unsuccessful attempts to surpass support at 1.2015 and settle below this level resulted in an upward correction of the euro, however, it was not possible to reach resistance at 1.2050 either. As a result, the day was quite boring.
Today we only have data on retail sales in the eurozone for December 2020, which is unlikely to significantly affect the balance of power in the market, even if the reports turn out to be better than economists' forecasts. The Economic Bulletin from the European Central Bank will only be of interest to economists. From a technical point of view, only the nearest levels have shifted, while the tactics remain the same. Buyers of the euro will need to focus on protecting support at 1.2005, on which the succeeding upward correction of EUR/USD depends. The lower border of the descending channel is below this level, the breakdown of which will only increase the pressure on the pair. A good fundamental report on the eurozone, indicating an improvement in the economic situation, will enable us to form a false breakout in the support area of 1.2005, 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 1.1965 has been tested, from where you can buy the euro immediately on a rebound, counting on an upward correction by 15-20 points. An equally important task for the bulls is to settle above the 1.2042 resistance, since the pair failed to surpass this level in today's Asian session. A breakthrough and consolidation 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 1.2084 area, where I recommend taking profit. The next target is the 1.2129 area.
To open short positions on EUR/USD, you need:
Selling at current lows can be dangerous. Therefore, forming a false breakout in the resistance area of 1.2042 generates a signal to open short positions in the euro in the first half of the day. Weak data on the eurozone will certainly allow the bears to realize this scenario, which can create a signal to enter short positions with the main goal of returning to the support area of 1.2005, which could not be surpassed 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 then pull down EUR/USD to a new yearly low in the 1.1965 area, where I recommend taking profits. A distant target will be support at 1.1923. And if the MACD indicator created problems for bears yesterday, then today there is no more divergence, and the indicator itself has returned to zero. If we observe an upward correction of the euro in the first half of the day, and the bears are not active in the resistance at 1.2042, then it is best to postpone short positions until 1.2084 high has been tested, from where you can sell EUR/USD immediately on a rebound for the purpose of falling by 15- 20 points within the day.
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 30 and 50 moving averages, which indicates continued 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 daily D1 chart.
Bollinger Bands
A breakout of the upper border of the indicator in the 1.2042 area will lead to a new wave of euro growth. A break of the lower border of the indicator in the 1.2005 area will increase the pressure on the euro.
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.
