In my morning article, I focused on several levels of support and resistance and recommended making decisions to enter the market, taking them into account. Let's look at the 5-minute chart and analyze it. Low market volatility amid the absence of important statistics in the euro area hampered the pair from reaching any of the levels outlined in the morning. Therefore, there were no signals to enter the market. From the technical point of view, the situation as well as the strategy has not changed for the second half of the day.
To open long positions on EUR/USD, you need:
In the morning, I mentioned the Fed's upcoming policy changes. The global market movements will most likely occur only after the outcomes of the Open Market Committee meeting are reported. Volatility will likely surge after the data on changes in the volume of durable goods orders with slowing down the index in June, as well as the report on the balance of US foreign trade are released. If the reports turn out better than economists' forecasts, the EUR/USD pair will be under pressure again. In that case, I recommend taking decisions according to the morning scenario. If the euro declines to the support area at 1.0125 and forms a failed break there, it will be the first signal to open long positions in hope of an upward jump with the target of building a further uptrend and updating intermediate resistance at 1.0171 with moving averages favoring bears. Only a breakout and a top-down test of this range will reject the stop orders, giving a signal to enter long positions with a prospect of a more significant rally to 1.0220. Moreover, this level will be extremely significant. The most distant target will be 1.0273. However, traders can reach it only after the Fed's decision is made. I recommend to lock in profits at this point. The pair's decline and absence of buyers at 1.0125 will be the reason for increasing the pressure on the pair, as the uptrend will be broken. If the EUR/USD pair exits the sideways channel, it will have a negative impact on the euro. In this case, it is advisable not to enter the market. A failed break near 1.0082 will be the best option to open long positions. I recommend buying the EUR/USD pair immediately on a rebound from 1.0045, or even lower around 1.0008, with the target of 30-35 pips upward intraday correction.
To open short positions on EUR/USD, you need:
The Federal Reserve's policy will have a significant impact on the euro. If its policy is tougher than expected, the demand for the dollar will increase again, with another large sell-off to renew parity. If the current situation meets economists' expectations and the rates are increased by 0.75%, buyers of risky assets will likely return to the market and the euro's surge to weekly highs and their renewal will be possible. In case of the euro's upward correction to 1.0171 and weak US data, short positions would be the best scenario in the second half of the day before the central bank's decision. Only a failed break at 1.0171 will form the first signal to open short positions, and the EUR/USD pair may drop to the support at 1.0125. A breakout and consolidation below this range, as well as a reversed down-top test, will result in an additional sell signal with the rejection of the buyers' stop orders and the pair's large downward movement to the area of 1.0082. This will strongly affect the speculative traders, who expect the pair to remain within the sideways channel before the FOMC meeting. If the pair consolidates below 1.0082, buyers will fail and the pair moves to 1.0045, where I recommend exiting the trade. The area of 1.0008 will be a further target. In case of growth of EUR/USD during the American session and absence of bears at 1.0171, I recommend not to open short positions till the resistance at 1.0220. Only a failed break there would be a signal to sell the euro. It is possible to open short positions from the highs of 1.0273, or even higher around 1.0323, with a target for a downward correction of 30-35 pips.
The COT report for July 19 showed an increase in short positions and a decrease in long positions, indicating a continued bearish sentiment in the market. It also resulted in a larger negative delta. Moreover, it suggests that there are fewer buyers than it was expected. Last week, the European Central Bank raised interest rates by 0.5%, which was beyond the expected 0.25%. This means that inflation is high in the euro area. However, markets did not react strongly to this decision and traders took a wait-and-see attitude ahead of a pivotal Federal Reserve meeting. Its results will be announced in the middle of this week. The fact that EUR has not risen again points to the possibility of further declines in risky assets this fall, as there are no real reasons for EUR/USD to strengthen: high inflation, the energy market crisis and an economy that is likely to face recession. The COT report shows that long non-commercial positions declined by 1,365 to 195,875, while short non-commercial positions jumped by 16,136 to 238,620. At the end of the week, the total non-commercial net position remained negative at -42,745 versus -25,244. The weekly closing price rose slightly to 1.0278 versus 1.0094.
Indicator Signals:
Moving averages
Trading is conducted below the 30 and 50-day moving averages, indicating a new bear market is forming.
Note. The period and prices of moving averages are considered by the author on hourly chart H1 and differ from the common definition of classic daily moving averages on daily chart D1.
Bollinger Bands
In the case of growth, the upper boundary of the indicator at 1.0151 will act as resistance. In the case of decline, the lower boundary of the indicator at 1.0100 will act as support.
Description of indicators
Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart. Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart. MACD (Moving Average Convergence/Divergence - moving average convergence/divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9Bollinger Bands (Bollinger Bands). Period 20Non-commercial traders are speculators, such as individual traders, hedge funds and large institutions, which use the futures market for speculative purposes and meet certain requirements.Long non-commercial positions represent the total long open position of non-commercial traders.Short non-commercial positions represent the total short open position of non-commercial traders.Total non-commercial net position is the difference between short and long positions of non-commercial traders.