To open long positions on EUR/USD, you need:
Yesterday, the euro was under pressure after the release of weak data on Germany, which led to another large sell-off to the support area of 1.1836. The rise in US bond yields is likely to weigh on the pair in the near future, as recent improvements in the US labor market once again pointed to a stronger recovery in the US economy earlier this year. The next aid package approved by the US Senate also leads to the strengthening of the US dollar, counting on a more active growth in consumption in the future.
Before talking about the prospects for the EUR/USD movement, let's see what happened in the futures market and how the Commitment of Traders (COT) positions changed. The COT report for March 2 revealed a sharp decline in long positions and a very large increase in short positions, which indicates a clear shift in the market towards sellers of risky assets. This is confirmed by the graph of the euro decline, which we have been observing for the third week. This time, it was not possible to quickly win back the next large decline in the pair. The sharp rise in bond yields in many developed countries continues, which plays in the favor of the dollar, as investors expect the United States to be the first to start raising interest rates, which makes the greenback more attractive. The recent approval by the US Senate of a new bailout package and a $1,400 payment to all Americans affected by the pandemic makes risky assets even less attractive. Therefore, it is better not to rush to buy euros, but to wait for lower prices. A good advantage for the euro will be the moment when the active curtailment of quarantine and isolation measures begins in European countries: Germany has already announced its plan in this direction, but it has not yet come to the point. It is also necessary to wait for the moment when the service sector will start working in full force again, which will lead to an improved economic outlook and also strengthen the EUR/USD pair. The COT report indicated that long non-commercial positions declined from 228,501 to 222,655, while short non-commercial positions rose from 90,136 to 96,667. As a result, the total non-commercial net position declined again for the third consecutive week, from 138,365 to 125,988. The weekly closing price was 1.2048 against 1.2164 a week earlier.
We have a fairly large amount of fundamental data on the European economy today: reports on the GDP of the eurozone and the level of employment for the 4th quarter of 2020 will be published in the first half of the day, and you also need to pay attention to the data on the foreign trade balance of Germany and industrial production in Italy... Good results could lead to an upward correction in EURUSD. Therefore, in the first half of the day, buyers will be focused on the breakout and consolidation above the resistance of 1.1884, which they missed in yesterday's European session. Moving averages pass there, so this will not be so easy. Testing this area from top to bottom creates an excellent signal to open long positions in euros for the purpose of rising to a high of 1.1932, where I recommend taking profits. The next target will be resistance at 1.1994. If buyers are not active during the European session, and the eurozone report turns out to be disappointing, then we can expect the euro to be under pressure and then it could fall to the support area of 1.1836. However, I recommend opening long positions from this level only if a false breakout is formed. It is also necessary to pay attention to the divergence, which is formed on the MACD indicator. If the pair drops to the support area of 1.1794 and the divergence remains on this indicator, then I recommend opening long positions immediately for a rebound, counting on an upward correction of 20-25 points within the day. The next major support level is seen around 1.1749.
To open short positions on EUR/USD, you need:
The bears have achieved a breakdown of 1.1884, and as long as trading is carried out below this range, then we can expect the pair to fall further. You can open new short positions in the first half of the day amid the downward trend but only if a false breakout is formed in the resistance area. This scenario may come true if we receive weak data on GDP in the eurozone and Germany's foreign trade balance. Strong divergence from forecasts for the worse will significantly affect the market and may result in bringing back large sellers. The closest target in this case will be the low of 1.1836, the breakout of which determines the pair's succeeding direction. A breakthrough of this level will lead to a larger will to pull down EUR/USD and lead the way to 1.1794, where I recommend taking profits. If we continue to observe an upward correction from the pair in the first half of the day, and the bears are not active in the resistance area of 1.1884, then it is best to postpone short positions until the 1.1932 area has been tested. From there, you can sell EUR/USD immediately on a rebound in hopes of falling by 20-25 points within the day. The next major resistance is seen around 1.1994.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which shows that sellers are in control of the market.
Note: The period and prices of moving averages are considered by the author on the H1 chart and differs from the general definition of the classic daily moving averages on the D1 daily chart.
Bollinger Bands
A breakout of the lower border of the indicator in the 1.1836 area will lead to a new wave of decline for the euro. A breakout of the upper border of the indicator in the 1.1884 area will cause the pair to rise.
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.
