Yesterday, traders received several interesting signals to enter the market. Let us take a look at the 5-minute chart to figure out what happened. Earlier, I asked you to pay attention to 0.9975 to decide when to enter the market. A decline to this level then its subsequent breakout passed without a reverse test upwards, which did not enable us to open short positions. The most interesting thing happened in the second half of the day after the release of data on the decline in US inflation. The euro rushed up and a false breakout in the area of 1.0136 led to a signal for a breakout, but it did not result in a major downward movement. After a 20 pips correction, the bulls achieved a breakdown and reverse test from top to bottom at 1.0136, which formed a buy signal further along the trend and led to a further 50 pips upswing. A false breakout near the next resistance at 1.0182 provided an excellent entry point for short positions, as a result of which the pair corrected back to 1.0136, where the bulls got down to business again and formed a second buy signal. This time the upward movement was more than 80 points.
Inflation in the US fell sharply to 7.7%, much better than economists' forecasts, which had expected it to decline to only 8.0%. This suggests that the Federal Reserve will seriously consider the suspension of the aggressive increase in interest rates by next year. Also, rate forecasts may be revised at the last December meeting, which contributes to the euro's growth against the US dollar and builds a new medium-term bullish trend.
Most likely the euro will continue to rise today, so I advise you to buy on a breakout of the resistance of 1.0281. A more optimal scenario for opening longs would be when the pair falls and a false breakout in the Asian support area of 1.0165. This will help ensure that there are big players betting on the euro's succeeding growth. A breakout and downward test of 1.0218 will open a direct path to the high of 1.0243, and there, very close to 1.0275, a more significant level, where bears should prove themselves, if they really remained. Surpassing this level would hit the bears' stops and form an additional buy signal with the possibility of pushing the pair to the 1.0303 level, which will strengthen the bullish trend at the end of the week.
If the pair falls and bulls fail to protect 1.0165, nothing terrible will happen, but the pair will be under pressure, leading to a downward move towards 1.0107, where the moving averages play on the bulls' side. The best decision to buy would be a false breakout in that level. It is also possible to go long after a bounce from 1.0050, or even lower - from 0.9995, expecting a rise of 30-35 pips.
When to go short on EUR/USD:The bears suffered a crushing defeat and now you need to be very careful with shorts. It is unlikely that we will see profit-taking at the end of the week, especially after yesterday's inflation data. The only things that could hurt the euro this morning would be data on the German consumer price index, weak economic forecasts for the EU economy and speeches by European Central Bank representative Fabio Panetta and Philip Lane. If the bears are counting on something today, then they need to show themselves in the area of the nearest resistance at 1.0218, there will be no other chance.
The optimal scenario for opening shorts would be a false breakout in this resistance area, which will provide an excellent entry point and allow you to go down to support 1.0165. The pair could settle below this level in case we receive a very weak economic outlook for the EU economy. A reverse upward test of 1.0165 will be a reason to sell EUR/USD with the goal of removing bullish stop orders and a larger fall to the 1.0107 area, where euro bulls will become active again and start to win back the decline. The farthest target will be the area of 1.0050, where I recommend locking in profits.
If EUR/USD moves up during the European session and bears fail to protect 1.0218, which is more likely, demand for the pair will increase, which will support the bull market and an update of 1.0243. I recommend opening shorts there only after a false breakout. It is also possible to go short after a rebound from the high of 1.0275, or even higher - from 1.0303, expecting a decline of 30-35 pips.
According to the recent Commitment of Traders (COT) report from November 1, the number of both short and long positions dropped. The US dollar continues losing value against risk assets despite the fact that the US Fed remains stuck to its approach. Most traders suppose that the regulator will end its aggressive tightening as early as next spring. After that, it is likely to start cutting the key interest rate quite smoothly. This may considerably boost demand for the euro. This week, such a rise could be triggered by the US inflation report, which has been shaping the Fed's approach. If inflation declines, the US dollar will lose value and the euro will confidently consolidate above the parity level. However, the bullish potential of the euro is also limited. The fact is that the ECB may revise its aggressive monetary policy after a sharp rise in the key interest rate. However, this will happen if the eurozone economy continues contracting. The COT report unveiled that the number of long non-commercial positions increased by 13,036 to 239,770, while the number of short positions dropped by 17,845 to 133,980. At the end of the week, the total non-commercial net position remained positive at 105,790 against 74,909. This indicates that investors continue benefiting from the situation and buying the cheap euro below parity, as well as accumulating long positions, expecting the end of the crisis. The weekly closing price rose to 0.9918 from 1.0000.
Moving averages
Trading is performed above the 30- and 50-day moving averages, indicating a bull market.
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
If the euro/dollar pair rises, the upper limit of the indicator located at 1.0303 will act as resistance. If the pair drops, the lower limit of the indicator around 1.0000 will act as support.
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.