In the morning article, I highlighted the levels of 1.0709 and 1.0672 and recommended taking decisions with this level in focus. Now let's look at the 5-minute chart and try to figure out what actually happened. A breakout and consolidation below 1.0709 with an upward test gave an excellent entry point for the short positions within the bearish trend. It triggered a sell-off. The euro/dollar pair declined to the next support level of 1.0672, the decrease totaled about 40 pips. A buy signal appeared after a false breakout of 1.0672. As a result, the upward correction was about 25 pips. As for technical indicators, there have been no changes in the afternoon.
What is needed to open long positions on EUR/USD
As I mentioned in the morning forecast, the euro faced a new sell-off as the macroeconomic calendar for the eurozone remained empty. Therefore, there were no drivers to fuel an upward movement. During the American session, the US is going to unveil a batch of macro stats, which may lead to a new major sell-off of the euro. For this reason, the pair may retreat from 1.0672 quite soon. If the report on the US consumer confidence turns out to be better than economists' forecasts, signaling steady conditions for households amid the inflation rate of 8.5%, the US dollar is sure to jump. Besides, such data will also indicate that an interest rate increase in May is unlikely to hinder economic expansion. The home sales report may also cause volatility in the market. Therefore, it is important to pay attention to it. Naturally, the bulls need to protect the intraday low of 1.0672. If EUR/USD falls again to this level, only a false breakout will generate a buy signal. As long as the price consolidates above this level, we can expect a further upward correction to 1.0709. A breakout and consolidation above this level will certainly undermine the sellers' stop orders. An upward test of this level will give a new buy signal, opening the way to the 1.0753 level. The moving averages are passing in the negative area slightly below this level. A more distant target will be the 1.0785 level where I recommend profit-taking. However, if EUR/USD grows in the afternoon and bulls show no activity at 1.0672, which is more likely in the current conditions, it is better to cancel long positions. The optimal scenario for buying the euro would be a false breakout of 1.0636. It is possible to open long positions on the euro immediately for a rebound only from 1.0572 or even a lower low around 1.0527, keeping in mind an upward intraday correction of 30-35 pips.
What is needed to open short positions on EUR/USD
Bears continue to exert pressure on the euro. A slight rebound from 1.0672 does not indicate that the pair will soon hit the bottom or break out of the bearish channel. The primary task of the bears for today is to protect the nearest resistance level of 1.0709, formed in the first half of the day. Given that the majority of analysts are warning about another serious problem for the global economy, namely supply chain disruptions due to the surge of coronavirus cases in China, the risk-off sentiment is back. It is a bearish factor for the euro. A false breakout of 1.0709 will give a sell signal as the pair is likely to slide down to 1.0672. A breakout and an upward test of this level will lead to a new sell-off of the euro, followed by a fall to 1.0636. A more distant target remains the lows of 1.0572 and 1.0527 where I recommend profit-taking. If the euro rises in the second half of the day and bears show no energy at 1.0709, I expect a sharp jump in the price as traders are sure to lock in profits at yearly lows. In this case, the optimal scenario for short positions will be a false breakout of 1.0753 where the moving averages are also passing in the negative territory. You can sell EUR/USD immediately on a rebound from 1.0785 or even a higher high around 1.0815, keeping in mind a downward correction of 25-30 pips.
COT report
The COT report (Commitment of Traders) for April 12 logged a sharp increase in long positions and a small drop in short ones. The bullish sentiment is getting strong as market participants expect the ECB to take measures to cap inflation. Christine Lagarde signaled the likelihood of monetary policy tightening last week. The fact is that the ECB plans to fully complete the bond purchase program by the third quarter of this year. At the same time, the regulator is ready to start raising interest rates. Apparently, the ECB acknowledges the need to combat high inflation, which adversely affects household incomes. However, other countries are also coping with this issue. Last week, the US revealed its inflation data. As it turned out, the figure soared to a four-decade high. Galloping inflation forces the Fed to take a more aggressive stance on monetary policy. Analysts predict that the regulator could hike the interest rate by 0.5% at the May meeting. Demand for the US dollar remains high amid such expectations. The euro/dollar pair, on the contrary, is likely to drop lower. The euro is unable to regain ground amid Russia's active military actions in Ukraine and the lack of progress in negotiations between the two parties. The pressure on the pair is likely to persist in the near future. The COT report revealed that the number of long non-profit positions climbed to 221,645 from 210,914, while the number of short non-profit positions decreased to 182,585 from 183,544. Despite an increase in long positions, the COT report is of less importance to trades. The market situation changes rather quickly. Thus, the report does not reflect the real market situation. Besides, a decline in the euro makes it more attractive to speculators. Therefore, the accumulation of long positions is not surprising. At the end of the week, the total non-commercial net position rose to 39,060 against 27,370. The weekly closing price fell by almost 100 pips to 1.0877 from 1.0976.
Signals of technical indicators
Moving averages
EUR/USD is trading below 30- and 50-period moving averages. It means that the bearish trend persists.
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 of a rise, the upper border at about 1.0740 will act as resistance.
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.