What is needed to open long positions on EUR/USD
In the morning market analysis, I turned your attention to 1.2199 and recommended taking trading decisions from it. Now let's look at a 5-minute chart and discuss what has actually happened. As expected, EUR remained unaffected by German PPI. In fact, EUR managed to recover to the resistance area of 1.2199. After successful activity of bears, a fake breakout formed at this level. The fake breakout generated a signal to open short positions. However, at the moment of making a forecast for the second half of the day, EUR/USD moved 15 pips and came to a standstill.
The technical picture didn't change in the first half of the day. EUR sellers are eager to take control over the market. So, the trading strategy for the second half of the day remains the same. Traders eye a weekly update on US unemployment claims which could support the US currency on condition that a number of claims for unemployment benefits decline more than expected, thus proving a recovery of the US labor market. EUR bulls need the price to rebound to 1.2199 that the currency pair failed to do in the first half of the day. Only a breakout and a test of this area downwards could suggest a new market entry point with long positions betting on a further uptrend and foreseeing a new one-month high at about 1.2242 where I recommend profit taking. A more distant upward target is seen at 1.2294, but the pair will find it hard to climb as high as that in light of yesterday's news. A reasonable scenario for long positions is a downward correction to the support area of 1.2153. If case a fake breakout is formed there, it would be a good market entry point with long positions betting on a halt of the intraday downtrend and a rebound back to resistance of 1.2199. This is where moving averages are passing that subdues the bullish momentum.
Under the scenario of the lack of bullish activity at around support of 1.2153, it would be better to cancel short positions until the price hits a large higher high at about 1.2103, bearing in mind an upward intraday correction of 15-20 pips.
What is needed to open short positions on EUR/USD
The bears coped well and retained control over 1.2199. While EUR/USD is trading below this level, the sellers can rely on a further downward correction which began in the second half of the day yesterday. Upbeat data on the US labor market will remind investors of an economic recovery that could reignite demand for the US dollar. A second fake breakout at 1.2199 will trigger another sell signal for EUR with the target at support of 1.2153. This level will determine a further downward correction. Hence, its breakout and a test upwards will create an extra point for short positions with a downward target of 1.2103 where I recommend profit taking.
If the bears do not reveal any activity at around 1.2199 in the second half of the day, I would recommend cancelling short positions at a drop from the large resistance of 1.2242 In fact, the price failed to climb over this level yesterday. We could sell EUR from there, bearing in mind a downward intraday correction of 15-20 pips. The next resistance is seen at a new swing high of 1.2294.
Let me remind you that the COT report (Commitment of Traders) from May 11 logged an increase of both short and long positions. The thing is that the buyers prevailed that week which enabled a further growth of overall non-commercial positions. The highlight of the last week was the US CPI data that set the tone for market sentiment. A sharp surge in consumer inflation provided USD with temporary support. However, traders took advantage of the situation and opened long positions after a downward correction of EUR/USD. Apparently, USD will be able to gain strong bullish momentum once the Federal Reserve revises its stance on monetary policy and sends a message that a rate hike could happen sooner than later. Until then, traders opt to buy risky assets that will help EUR make higher multi-month highs. The COT report indicates that long non-commercial positions surged to 223,387 from 206,472.
At the same time, short non-commercial positions rose from 121,643 to 129,480. This change signals that new buyers are entering the market betting on a further EUR growth. Nevertheless, as soon as EUR makes a higher high, more and more traders prefer to sell EUR/USD. The overall non-commercial net positions increased from 84,829 to 93,907. The currency pair closed last week at near 1.21406 against 1.20591 from a week ago.Signals of technical indicators
Moving averages
The pair is trading slightly below 30- and 50-period moving averages. It confirms the bearish outlook for EUR.
Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.
Bollinger Bands
In case the currency pair breaks the lower border at near 1.2153, this will drag EUR down. Alternatively, a breakout of the upper border at about 1.2210 will encourage a further climb of EUR.
Definitions of technical indicators
Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart. Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line. MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line". Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average. Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements. Non-commercial long positions represent the total long open position of non-commercial traders. Non-commercial short positions represent the total short open position of non-commercial traders. The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.