In the morning article, I highlighted the level of 1.0000 and recommended making decisions with this level in focus. Now let's look at the 5-minute chart and try to figure out what actually happened. Despite a slight drop caused by an attempt of European traders to facilitate the downtrend, the euro/dollar pair failed to reach 1.0000. So, a false breakout of this level did not take place. For this reason, I did not open long positions. The technical outlook has not changed for the second half of the day as well as the strategy.
What is needed to open long positions on EUR/USD
Traders are defending the parity level. However, they are unwilling to open long positions above this level. In the afternoon, the US will reveal a batch of economic reports, which have been impacting market sentiment during the week. The US retail sales and industrial production reports are sure to stir up market activity. So, the pair is likely to test the indicated levels. Strong data on the University of Michigan Consumer Sentiment Index may increase pressure on the pair. In case of a sharp drop, buyers will again have to protect the nearest support level of 1.0001. Only after a false breakout, a correction may occur. The resistance level of 1.0057 remains an equally important target level. There may be a decline in the seller's stop-loss orders in case of a breakout and a downward test of this level. It will also give a buy signal with the prospect of a rise to 1.0116 at the end of the week. However, it is early to talk about the continuation of a steady upward correction. At the level of 1.0116, the bears will try to build the upper border of the downward channel. So, an upward movement is likely to be limited. A more distant target will be the 1.0182 level where I recommend locking in profits. If EUR/USD slides and bulls show no activity at 1.0001 in the afternoon, which is more likely, the euro may face strong bearish pressure. In this case, it is better to cancel long positions until a breakout of 0.9958. You can buy EUR/USD immediately at a bounce from the 0.9915 level or even a low of 0.9886, keeping in mind an upward intraday correction of 30-35 pips.
What is needed to open short positions on EUR/USD
As long as trading is carried out below 1.0057, the euro/dollar pair is likely to keep dropping, especially due to a sharp jump in retail sales in the US. Such a surge will only fuel inflation, forcing the Fed to take tighten monetary policy more aggressively. Recently, many Fed officials have been hinting that the regulator may raise the interest rates by 1.0%, which is bullish for the US dollar. If EUR/USD rises in the afternoon after weak reports, a false breakout of 1.0057 will generate a sell signal with the prospect of a further decline to the support level of 1.0001. This level is the last one before the price breaks the parity with the US dollar. A breakout and a drop below this level, as well as an upward test, will provide an additional sell signal. It will also erase the buyers' stop-loss orders, pushing the pair down to 0.9958. If this scenario comes true, the pair is likely to slide to 0.9915 where I recommend closing all short positions. A more distant target will be the 0.9886 level. If EUR/USD climbs during the American session and bears show no energy at 1.0057, I advise you to postpone short positions to a more attractive resistance level of 1. 0116. Only a formation of a false breakout of 1.0116 will strengthen the bearish momentum as it is hard to predict market reaction to US data. You can sell EUR/USD immediately at a bounce from 1.0182 or a high of 1.0271. keeping in mind a downward intraday correction of 30-35 pips.
COT
The COT report (Commitment of Traders) for July 5 logged an increase in long and short positions. However, short positions exceeded long ones by almost two times. It signals the strength of the bearish bias. It led to a bigger increase in the negative delta. Last week, market participants were disappointed by the eurozone retail sales report. After studying the Nonfarm Payrolls report, the Fed is likely to maintain an aggressive monetary policy to cap galloping inflation. The President of the European Central Bank, Christine Lagarde, also spoke about the need to start raising the interest rate to curb inflation. The United States will reveal CPI data on Wednesday. Analysts expect another jump in consumer prices. If this scenario comes true, the US dollar may climb higher against the euro, approaching parity. The COT report revealed that the number of long non-profit positions increased by 7,724 to the level of 197,138, while the number of short non-profit positions climbed by 13,980 to the level of 213,990. The US dollar is approaching new highs amid the low exchange rate of the euro, the need for further aggressive tightening by major central banks, and the recession in many developed countries. At the end of the week, the total non-commercial net position remained negative and amounted to -16,852 against -10,596. The weekly closing price dropped to 1.0316 against 1.0584.
Signals of technical indicators
Moving averages
EUR/USD is trading near 30- and 50-period moving averages, which indicates market uncertainty.
Remark. The author is analyzing the 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 of 1.0050 will act as resistance. A breakout of the lower border of 1.0000 will lead to a new sell-off of the euro.
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.