Yesterday, the pair formed several great signals for entering the market. Let's have a look at the 5-minute chart. In my morning review, I mentioned the level of 1.0817 as a possible entry point. Its breakout and a firm hold above this level formed a buy signal for a potential rise toward the upper boundary of the sideways channel. However, the price failed to surge upwards. The most that we could get was 20 pips in profit. In the afternoon, bears regained control of 1.0817 and retested it, thus creating a sell signal. As a result, the euro went down by more than 30 pips.
For long positions on EUR/USD:
Strong employment data and robust manufacturing activity in the US allowed the dollar bulls to develop a downward correction of the pair. Yet, they couldn't settle at the daily lows. The statement made by ECB President Christine Lagarde assured traders that the regulator will keep raising the rates, following the lead of the US Federal Reserve. The latter is not going to ease its monetary policy even despite a slowdown in the economy. Today, markets will pay attention to the German PPI for December, which is unlikely to change the trajectory of the pair. Another speech by Christine Lagarde will have little effect as well. The head of the ECB will probably repeat everything she said yesterday. Therefore, I will bet on the decline in the euro. To add more long positions, it is better to make sure that bulls are active at the nearest support of 1.0817 which is the middle of the sideways channel. If EUR/USD falls toward this level in the first half of the day, only a false breakout will give us a buy signal that may lead the pair back to the monthly high of 1.0866. So far, the pair has failed to hold at this level. Strong data from the eurozone may encourage the pair to break through this level and retest it. This will create an additional entry point for going long with the upper target at 1.0931. A breakout of this level will trigger stop-loss orders set by bears and will form an additional buy signal. After that, the pair may head for 1.0970 where I'm going to take profit. In case EUR/USD declines and buyers are idle at 1.0817 in the first half of the day, the euro may extend its correction at the end of the week, and the pair will come under pressure again. So, the focus should be on the next support at 1.0769 which is also a lower boundary of the sideways channel. A false breakout at this level will generate a buy signal. I'm planning to go long after a rebound from the low of 1.0728 or 1.0687, keeping in mind an intraday upward correction of 30-35 pips.
For short positions on EUR/USD:
Yesterday, bears failed to control the middle of the sideways channel but bulls couldn't get advantage of this. The pressure on the pair can be back at any moment as today's macroeconomic data is unlikely to support the euro. The priority for the seller will be to protect the upper boundary of the sideways channel at 1.0866. I would recommend focusing on this level. If EUR/USD surges to the upside in the course of the European session, the best moment to sell will be a failed attempt of the price to settle above 1.0866. This will give us a good signal for opening short positions against the trend, and the pair may fall toward the level of 1.0817. This is where market forces will test each other. If the price moves below this range, the pressure on the pair will increase. If so, traders may want to close some of their long positions at the end of the trading week. A breakout and a retest of 1.0817 will hurt the prospect of a bullish trend and create an additional sell signal with the next target at 1.0769. Consolidation below this range will send the price lower to 1.0728. The level of 1.0687 will serve as the lowest target in this case. If the pair tests this level, this will indicate the formation of the bear market. I'm going to lock in profit at this point. In case EUR/USD advances in the European sessions and bears are idle at 1.0866, which is very unlikely, it will be better to go short only when the price reaches 1.0931. Selling at this level should be done only after a failed attempt to settle there, just as it happened yesterday. I will sell EUR/USD after a rebound from the high of 1.0970, bearing in mind a downward correction of 30-35 pips.
COT report:
The Commitments of Traders report for January 10 showed a rapid rise in both long and short positions. Traders are coming back to the market after the winter holidays. Their sentiment is shaped by the data revealing a slowdown in US consumer prices in December 2022. As inflation is cooling down, the US Federal Reserve may decide to ease the pace of monetary tightening at its next meeting in February and raise the rate by just 0.25%. This will be a bearish factor for the US dollar which is losing ground against the euro. Demand for risk assets is also rising as a more relaxed stance of the US regulator revives risk appetite. So, assets that have depreciated over the past year are becoming more attractive to investors. We still need to monitor comments by the Fed officials to get more hints about the future monetary policy. According to the latest COT report, long positions of the non-commercial group of traders increased by 16,080 to 238,623, while short positions jumped by 11,013 to 103,641. At the end of the week, the total non-commercial net position increased to 134,982 from 129,915. This means that investors continue to buy the euro hoping that central banks will ease their monetary policies this year. Yet, the euro needs strong fundamental drivers to develop a steady uptrend. The weekly closing price went up to 1.0787 from 1.0617.
Indicator signals:
Moving Averages
Trading above the 30- and 50-day moving averages indicates market uncertainty.
Please note that the time period and levels of the 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 advances, the upper band of the indicator at 1.0845 will serve as resistance. In case of a decline, the lower band of the indicator at 1.0800 will act as support.
Description of indicators:
• A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart;
• A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart;
• MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 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 positions opened by non-commercial traders;
• Short non-commercial positions represent the total number of short positions opened by non-commercial traders;
• The non-commercial net position is the difference between short and long positions of non-commercial traders.