In my morning forecast, I pointed out the levels of 1.0515 and 1.0551 as good points for entering the market. Let's look at the 5-minute chart and see what happened there. At the beginning of the European session, the price returned to 1.0515 and tested this level from top to bottom. This generated a great entry point for long positions, considering a further recovery to 1.0551, which subsequently happened later. I managed to make about 30 pips in profit. The expected false breakout at 1.0551 formed a signal to sell the euro following the trend. This resulted in a massive sell-off followed by a break of 1.0515, which brought another 30 pips of profit. In the afternoon, the technical situation has changed, so you need to take into account the new levels.
For long positions on EUR/USD:
The GDP report for the first quarter of 2022 will be an important event for the market today. Analysts expect to see a sharp economic slowdown. It will be even worse if the reading points to a contraction or even a recession, which is what the US Federal Reserve has been afraid of lately. As the euro is steadily declining, bears will aim to break through the next local low of 1.0486. Accordingly, buyers will do their best to protect it. A disappointing report on US GDP and the formation of a false breakout at 1.0486 will create a buy signal for the euro. In this case, the bulls will aim at 1.0527. A breakout and consolidation above this level will certainly trigger the stop-loss orders of speculative sellers. A retest from top to bottom will generate a buy signal, creating an opportunity to recover to the 1.0557 area. This is where the moving averages supporting the sellers are located. A more distant target will be the area of 1.0588, where I recommend taking profit. However, in case EUR/USD continues to decline in the afternoon and buyers' activity decreases at 1.0486, it is best to wait with opening long positions. The pair is very likely to repeat its trajectory from yesterday when it dropped to yearly lows. The best scenario to buy the pair would be a false breakout around 1.0426. You can open long positions on the euro immediately on a rebound from 1.0394, or even lower around 1.0347, considering an upward correction of 30-35 points within the day.
For short positions on EUR/USD:
The EUR/USD pair remains under strong bearish pressure. After defending the key resistance at 1.0551, sellers regained control over the market. Most likely, bear traders expect to see a strong US GDP report and positive data on the number of initial jobless claims. If the reading exceeds the forecast, the euro will depreciate further. The main goal for bears today is to maintain control over the nearest resistance at 1.0527, formed in the first half of the day. The pair will be able to return to this level only if the reports in the US turn out to be weak. A false breakout at 1.0527 will create a sell signal and an opportunity to resume a decline towards 1.0486. A breakout and a test of this range will start a new sell-off in the euro, with the downward targets at 1.0426 and 1.0394. A more distant target will be the low of 1.0347, where I recommend taking profit. But be careful when selling on breakouts of yearly lows. Although there are no obvious reasons for growth, technical indicators and the oversold status can confuse you. It is better to sell the pair when the price is rising. If the euro moves up in the afternoon and there are no bears at 1.0527, I expect the pair to move higher amid profit taking near yearly lows. It is good to go short when a false breakout is formed at 1.0557, just where the moving averages are located. You can sell EUR/USD immediately on a rebound from 1.0588, or even higher around 1.0621, keeping in mind a downward correction of 25-30 points.
COT report
The COT report (Commitment of Traders) for April 19 recorded a sharp increase in short positions and a reduction in the long ones. Recent statements by some central bank officials triggered a sell-off in risk assets as everyone understands that Western countries will surely face serious economic challenges this year. The head of the European Central Bank noted that the regulator was planning to discontinue its bond buying program by the end of the second quarter of 2022 and hinted at a rate hike in early autumn. Yet, this was not enough to support the euro. On the other hand, a more aggressive policy of the US Federal Reserve and expectations of a 0.75% rate hike in May are the main factors that drive the US dollar. Markets also fear that severe quarantine restrictions in China due to the new wave of Covid-19 will paralyze the economy. The lockdown has already led to a massive disruption in the supply chains in Europe and Asia. So, the US dollar remains in high demand, pushing the EUR/USD pair down. Russia's new round of military actions in Ukraine and the lack of progress in peace talk also weigh on the euro and are likely to do so in the near term. The COT report shows that long positions of the non-commercial group of traders decreased from 221,645 to 221,003, while short positions rose sharply from 182,585 to 189,702. At the same time, a decline in the euro makes it more attractive to investors; therefore, the number of long positions is not surprising. As a result, the total non-commercial net position decreased and amounted to 34,055 against 39,060. The weekly closing price dropped sharply and stood at 1.0814 against 1.0855.
Indicator signals:
Moving Averages
Trading below the 30- and 50-day moving averages indicates a further bearish trend on the pair.
Please note the time period and prices of moving averages are analyzed only for the H1 chart which differs from the general definition of the classic daily moving averages on the D1 chart.
Bollinger Bands
If the pair rises, the upper band at 1.0580 will serve as resistance.
Description of indicators:
• A moving average determines the current trend by smoothing volatility and noise. 50-day period; marked in yellow on the chart;• A moving average determines the current trend by smoothing volatility and noise. 30-day period; marked in green on the chart;• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA, 12-day period; Slow EMA, 26-day period. SMA with a 9-day period;• Bollinger Bands: 20-day period;• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements;• Long non-commercial positions represent the total number of long position opened by non-commercial traders;• Short non-commercial positions represent the total number of short position opened by non-commercial traders;• The total non-commercial net position is the difference between short and long positions of non-commercial traders.