Yesterday, traders received several signals to enter the market. Let us take a look at the 5-minute chart to clear up the market situation. Earlier, I asked you to pay attention to the level of 0.9949 to decide when to enter the market. Amid the first upward correction, buyers of the euro protected 0.9949, forming a perfect short signal, thus causing a decline of more than 30 pips. However, the pair failed to reach new lows. The second test of 0.9949 resulted in a breakout. The market sentiment changed sharply, though there were a few reasons for that. The price consolidation above 1.0001 and a downward test of this level gave a long signal. However, the pair did not jump significantly. Instead, it inched up by 25 pips.
Conditions for opening long positionsLet us take a look at the futures market before we learn about the future movement of the euro/dollar pair. According to the COT report from August 23, the number of both long and short positions soared. This fact points to great interest among traders, especially after the euro dropped below the parity level. Fed Chair Jerome Powell's speech in Jackson Hole led to a surge in volatility and provided short-lived support for the US dollar. However, big traders prevent the pair from falling below the parity level and become more active every time it starts losing value. Jerome Powell said that the Fed would do its best to cap inflation. That is why the regulator is likely to keep the current pace of monetary policy tightening. Since traders priced in such an outcome before the symposium, the euro managed to stay intact. This week, traders should analyze the US labor market data that has a considerable influence on the Fed's plans. Thus, a strong labor market may contribute to high inflation, thus forcing the Fed to raise the benchmark rate even more. The COT report reads that the number of long non-commercial positions increased by 11,599 to 210,825, whereas the number of short non-commercial positions jumped by 12,924 to 254,934. At the end of the week, the total non-commercial net position remained negative and decreased to -44,109 against -42,784, which reflects pressure on the euro and a further fall in the trading instrument. The weekly closing price decreased to 0.9978 from 1.0191.
Today, Germany is going to disclose an important macroeconomic report. Although in August, inflation may slow down, on a yearly basis it is likely to remain at its highs, thus affecting the ECB's plans. Meanwhile, the eurozone will disclose its consumer confidence data. In the event of a decline, the pair's upward potential is likely to be limited. In this case, the price will continue hovering within the sideways channel. If the reports are weak and traders show a negative reaction, only a false breakout near the support level of 0.9972 will give a long signal. If the predictions come true, the pair may show an upward correction to reach a new resistance level of 1.0020. A breakout and a downward test will allow the pair to get rid of bearish pressure, thus forming a long signal with the target at 1.0050. The farthest target is located at 1.0084, where it is recommended to lock in profits. If the euro/dollar pair declines and buyers fail to protect 0.9972, pressure on the pair will increase. In this case, it may even hit a new low of 0.9941. Traders may go long from this level only after a false breakout. It is also possible to open long orders just after a bounce off 0.9905 or even lower –from 0.9861, expecting a correction of 30-35 pips within the day.
Conditions for opening short positions on EUR/USD:
Yesterday, sellers failed to push the price to a new yearly low after hawkish comments provided by Jerome Powell. It means that traders do not want to sell the euro at the current lows. That is why today, traders may go short after a false breakout of the nearest resistance level of 1.0020. The pair jumped to this level after the publication of fundamental data in Germany. In this case, the euro may slide to 0.9972. A breakout and settlement below 0.9972 as well as an upward test of this level will give an additional sell signal with the target at the yearly low of 0.9905. If the pair settles below this level, it will surely drop to 0.9861, where it is recommended to lock in profits. The next target is located at 0.9830. If the euro/dollar pair increases during the European session and bears fail to protect 1.0020, the pair may jump since bulls may gain control over the market. In this case, traders should avoid sell orders until the price hits 1.0050. A false breakout of this level will give a sell signal. It is also possible to sell the euro/dollar pair just after a rebound from the high of 1.0084 or higher – from 1.0127, expecting a correction of 30-35 pips.
Signals of indicators:
Moving Averages
Trading is performed above 30- and 50-day moving averages, thus pointing to a small advantage for buyers.
Note: The period and prices of moving averages are considered by the author on the one-hour chart which differs from the general definition of the classic daily moving averages on the daily chart.
Bollinger Bands
A breakout of the lower limit of the indicator located at 0.9972 will lead to a decrease in the euro. A breakout of the upper limit located at 1.0020 may spur a rise.
Description of indicatorsMoving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart. Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph. MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9. Bollinger Bands. The period is 20. Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements. Long non-commercial positions are the total number of long positions opened by non-commercial traders. Short non-commercial positions are the total number of short positions opened by non-commercial traders. The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.