To open long positions on EUR/USD, you need:
The US labor market report was released last Friday, and a signal to buy the euro was generated. Let's take a look at the 5 minute chart and talk about what happened. Low activity during the European session and a sharp surge in volatility after the report on the growth of the unemployment rate in the US led to a breakthrough and pushed the pair to settle above the resistance of 1.1839. A reverse test of this level from top to bottom created a signal to open long positions. But even if you did not have time to enter the first wave, then a more convenient false breakout was formed in the middle of the US session, after which the pair went up about 30 points.
Important data on the PMI index for the services sector of the eurozone countries and the composite index will be published this morning. The reports could bolster the euro as these numbers should continue to rise as the economy recovers from the coronavirus pandemic. Independence Day is also celebrated in America today, so the markets will be closed, and therefore, volatility is expected to be rather weak. We are waiting for European Central Bank President Christine Lagarde's speech in the European session, which is unlikely to seriously affect the euro's direction. Last week, we listened to Lagarde quite a lot, but it wasn't all about monetary policy. The bulls' primary concern is to protect the 1.1839 support. Forming a false breakout there generates a signal to open long positions in hopes EUR/USD would rise to the resistance of 1.1872. It is possible to count on a breakdown of this level, however, I recommend opening long positions in continuation of the euro's growth after its test from top to bottom, which, along with good data on the eurozone services sector, creates another buy signal in order to return the pair to the larger resistance of 1.1921, where I recommend taking profit. The next target will be the area of 1.1974. In case the bulls are not active around 1.1839 and we receive inconclusive data for the eurozone, it is best not to rush into long positions. I advise you to wait for the 1.1805 support update, from where you could observe rapid longs on the euro last Friday. It is also possible to buy EUR/USD immediately on a rebound from a new monthly low in the 1.1769 area, counting on an upward correction of 15-20 points within the day.
To open short positions on EUR/USD, you need:
Bears can lose control of the market, so they need to work very hard to regain the initiative. Their top priority for the first half of the day will be to break the support at 1.1839, slightly above which are the moving averages playing on the side of the bulls, which limits the pair's downward potential. A breakthrough and test of the 1.1839 area from the bottom up will create a good signal to open short positions in continuation of the bear market, in hopes that the pair would fall to a low like 1.1805, where I recommend taking profits. Further support can be found in the area of 1.1769, but considering what day it is today, we are unlikely to reach it. If the euro grows in the first half of the day, an equally important task is to protect the resistance at 1.1872. Forming a false breakout there creates an entry point for short positions. If the bears are not active there, it is best to postpone selling until the test of a larger resistance in the 1.1921 area, where you can immediately sell the pair on a rebound, counting on a downward correction of 15-20 points. The next major resistance is at the 1.1974 high.
The Commitment of Traders (COT) report June 22 showed significant changes: long positions sharply fell and short positions increased. Such changes took place after the Federal Reserve's meeting on interest rates. Let me remind you that during the last meeting, the central bank made the first hints of an earlier increase in interest rates. Some Fed members expect this kind of change as early as 2022. This suggests that in the near future the central bank may begin to wind down its bond purchase program, which will strengthen the US dollar's position on the world stage even more. However, if the European currency falls even further in the near future, then the demand for it will increase even more in anticipation of such measures from the European Central Bank, which, as we all know, has recently been following the Fed's example and with a slight delay. A number of important fundamental reports on the US labor market will be published this week, as well as many speeches by the heads of world central banks that are set to take place, which will help traders decide on the future course of monetary policy. Most likely, the trend towards the strengthening of the US dollar will continue this week, but it will be more and more difficult for the bears to pull down the pair. The COT report indicates that long non-commercial positions fell from 210,816 to 207,863, while short non-commercial positions rose from 92,630 to 118,806. It should be understood that the latest data on activity in the euro manufacturing sector and the service sector indicated that the eurozone economy is on track for strong growth in the summer, which will necessarily affect the prospects for its recovery after the coronavirus pandemic. This is the key to a medium-term upward trend in the European currency. The total non-commercial net position decreased from the level of 118,186 to the level of 89,057. The weekly closing price decreased from the level of 1.2121 to the level of 1.1912.
Indicator signals:
Trading is carried out above 30 and 50 moving averages, which indicates an attempt by the bulls to build an upward correction of the pair.
Moving averages
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
Surpassing the upper border of the indicator around 1.1880 will lead to a new wave of euro growth. In the event of a decline, support will be provided by the lower border of the indicator in the area of 1.1830.
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.
