EUR/USD: plan for the European session on April 27. COT reports. Euro falls to 2020 low

When to go long on EUR/USD:

Three market entry signals were formed yesterday, and all of them turned out to be quite profitable. I suggest you take a look at the 5-minute chart and figure out what happened. In my morning forecast, I paid attention to the levels of 1.0709 and 1.0672 and advised you to make decisions on entering the market. A breakthrough and consolidation below 1.0709 with a reverse test from the bottom up resulted in forming an excellent entry point for short positions in continuation of the bear market, which resulted in a major sell-off to the next support area of 1.0672, allowing about 40 points to be pulled from the market. A false breakout at 1.0672 resulted in a buy signal. As a result, the upward correction amounted to about 25 points. A similar signal for longs from the 1.0672 level was formed during the US session. But there the upward movement amounted to about 15 points, after which the euro was under pressure again. A breakthrough of 1.0672 occurred without a certain emphasis and an update from the bottom up, so it was not possible to get an entry point for selling the euro there.

COT report:

Before talking about the further prospects for the EUR/USD movement, let's look at what happened in the futures market and how the Commitment of Traders (COT) positions have changed. The COT report for April 19 logged a sharp increase in short positions and a decline in long positions. Recent statements by representatives of central banks have led to a sell-off of risky assets, as it became clear to everyone that serious problems in the economies of developed countries cannot be avoided this year. And although the president of the European Central Bank noted that the regulator plans to fully complete the bond purchase program by the end of the second quarter of this year, hinting at a rate hike in early autumn, this was not enough to support the euro. A more aggressive policy of the Federal Reserve and expectations of a 0.75% rate hike in May are supporting the dollar. Another concern is the threat of another economic paralysis due to severe quarantine restrictions in China against the backdrop of a new wave of Covid-19, which has already led to a massive disruption in the supply chains of European and Asian countries. As a result, the US dollar continues to be in demand, which will continue to push the EUR/USD pair down. Russia's new active actions on the territory of Ukraine and the lack of progress in resolving the conflict also put pressure on the euro, and will continue to do so. The COT report shows that long non-commercial positions decreased from 221,645 to 221,003, while short non-commercial positions rose sharply from 182,585 to 189,702. It is worth noting that the euro's decline makes it more attractive to investors, therefore, the closure of long positions is not surprising. As a result of the week, the total non-commercial net position decreased and amounted to 34,055 against 39,060. The weekly closing price collapsed and amounted to 1.0814 against 1.0855.

The euro is on the verge of recording a new low in 2020, when risky assets fell sharply in price due to the outbreak of the coronavirus pandemic around the world. The fact that the euro is trading at such lows parallels how nervous investors were then and now. Much will depend on whether the bulls show themselves again in the area of 1.0633 or not. Given that we will not receive any important EU reports in the first half of the day, there is nothing special for bulls to count on today. Only very strong data on the leading index of the consumer climate in Germany and the statements of the member of the executive board of the ECB Philip Lane will somehow benefit the bulls, who will attempt to regain control of resistance at 1.0664, formed on the basis of yesterday. But this will be quite difficult to do. In addition to a large number of bears focused there, moving averages are slightly higher, playing on the bears' side. Only a breakthrough and reverse test from the top down of this level will lead to the first signal to buy the euro with the goal of returning to the major resistance at 1.0696, which really limits the pair's upside potential. Going beyond 1.0696 will hit the bears' stop-orders, making it possible to build a stronger upward correction to the highs: 1.0736 and 1.0775. However, such growth will be possible only in case we receive aggressive statements from European Central Bank President Christine Lagarde, who lately more and more often hints at an increase in interest rates in the eurozone this autumn. In case the pair falls, the main task is to protect the support at 1.0633. A second fall to this level can occur at any moment, as traders are now clearly not optimistic about everything that is happening in the world and the economy. Only a false breakout there will provide the first signal for a long position. In case the pair falls and there are no bulls at 1.0633, it is best to postpone long positions. The optimal scenario for opening long positions would be a false breakout of the low around 1.0605, but you can buy EUR/USD immediately for a rebound only from 1.0572, or even lower - around 1.0527, counting on an upward correction of 30-35 points within the day.

When to go short on EUR/USD:

Bears coped with all the tasks set yesterday and now they have every chance to continue the bearish trend. However, the fact that we are near the 2020 lows clearly limits the downward potential. Do not rush to sell on a breakout, as you can easily get into a reversal and market correction. While the trade will be conducted below 1.0664, the probability of a decline will remain quite high, but if the bears lose this level, everything will turn upside down. Forming a false breakout at 1.0664 will lead to a sell signal, followed by a decline to the support area of 1.0633, on which quite a lot depends. This level has already been tested in today's Asian session and yesterday's US session, and as we can see, no one is especially willing to buy the euro. Returning to this range could seriously hurt the bulls' plans, forcing them to move lower. A breakthrough and reverse test of 1.0633 will provide another signal to open short positions with the prospect of a decline to a low like 1.0605. The 1.0572 area will be the next target, which is where I recommend taking profits. If the euro rises and there are no bears at 1.0664, the bulls will try to build up long positions in anticipation of an upward correction in the pair. Much of today will depend on Lagarde's statements, which can help the euro in the current environment. The optimal scenario would be short positions when forming a false breakout in the area of 1.0696. You can sell EUR/USD immediately on a rebound from 1.0736, or even higher - in the area of 1.0775, counting on a downward correction of 25-30 points.

Indicator signals:

Trading is below 30 and 50 moving averages, which indicates a further decline in the pair on the trend.

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

A breakthrough of the lower border of the indicator in the area of 1.0625 will push the euro fall. Surpassing the upper limit of the indicator in the area of 1.0670 will lead to the euro's growth.

Description of indicators