There were several entry signals on Friday. Let us have a look at the 5-minute chart and figure out what happened. There were no entry points in the first half of the day. During the US session, the pair tested 1.0817 and performed a false breakout of this level. It created a buy signal, but the pair only moved up by 10 pips. Afterwards, EUR/USD returned below 1.0817 and performed an upward retest of that level, creating a sell signal. However, the pair did not move downwards after that.
When to open long positions on EUR/USD:
Today, increased volatility could be expected in the first half of the day, as some fundamental statistic data will be released. Moreover, the euro broke above 1.0866 during the Asian session and now bulls will do everything to defend that level. If the Bundesbank's report is disappointing and the market has a negative reaction to remarks by ECB's Fabio Panetta and Christine Lagarde, the pair is likely to move down to 1.0866. Long positions should be opened there only after a false breakout of that level. The area of 1.0931 will be the target. EUR/USD have not managed to hit it yet, and a breakout and a downward retest of this level will only be possible if the eurozone consumer confidence data is strong. This will create an additional entry point for opening long positions, and the pair will surge to 1.0970 afterwards. A breakout of that level will trigger stop-loss orders of bears and create an additional buy signal. The pair may then rise towards 1.1007, where I will take profits. If EUR/USD declines and bulls are inactive at 1.0866, a larger correction could begin in the first half of the day - the pair returning below 1.0866 will make a new uptrend unlikely. The key level will be the support at 1.0817, which is in the middle of last week's horizontal channel. Only a false breakout of this level will create a buy signal. You can buy EUR/USD immediately if it bounces off the low at 1.0769 or 1.0728, targeting an upward correction of 30-35 pips intraday.
When to open short positions on EUR/USD:
Bears missed 1.0866 today, which have complicated the situation. Now, they need the pair to retake that level to ensure that there is still support from major players. Today's statistic data is unlikely to give strong support to the euro, which may come under pressure at any time. The first objective for bears is to hold onto the resistance at 1.0931. A failed breakout above this level will create a sell signal and push the pair towards the key level of 1.0866. Below this level, EUR will come under increased pressure, which would lead to numerous long positions being closed at the beginning of the week. A breakout and a retest of 1.0866 will create another sel signal, pushing the pair down towards 1.0817. If EUR/USD drops below that level as well, it may then slide down to 1.0768. The most distant target is 1.0728, where I will take profit. If EUR/USD moves up during the European session and bears are inactive at 1.0931, which is currently plausible, new short positions should only be opened if EUR/USD fails to settle above 1.0970, similar to the previous trading session. Traders can sell EUR/USD immediately if it bounces off the high at 1.1007 targeting a downward correction of 30-35 pips.
Commitment of Traders (COT) report:
The COT report (Commitment of Traders) for January 10 showed that both long and short positions increased sharply. Obviously, traders are coming back to the market, especially after the winter holidays and the release of cooler US inflation data for December 2022. The CPI data allows the Fed to slow down its interest rate hikes at its February meeting and raise them by only 0.25%, which would weaken the US dollar against the euro. Demand for risky assets is also on the rise, as a less hawkish US monetary policy is bringing back risk appetite, making these assets look quite attractive after last year's downturn. Now it is important to keep following the speeches of Fed policymakers and try to draw some conclusions about the FOMC's possible policy course in February 2023. The COT report indicates that long non-commercial positions rose by 16,080 to 238,623, while short non-commercial positions jumped by 11,013 to 103,641. At the end of the week, total non-commercial net positioning went up to 134,982 versus 129,915. All this suggests that investors continue to buy euros anticipating central banks to ease their aggressive policy this year. However, a strong euro uptrend needs a new fundamental trigger to keep going. The weekly closing price rose to 1.0787 vs. 1.0617.
Indicators' signals:
Moving averages
Trading is carried out above the 30-day and 50-day moving averages, which indicates that the euro's upward movement is continuing.
Note: The period and prices of moving averages are considered by the author on the H1 (1-hour) chart and differ from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
If EUR/USD moves up, the upper boundary of the indicator around 1.0900 will serve as resistance. Otherwise, the pair will find support at the lower boundary near 1.0800.
Description of indicators
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked green on the chart.
• MACD indicator (Moving Average Convergence/Divergence - convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
• Bollinger Bands (Bollinger Bands). Period 20
• Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that 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 the short and long positions of non-commercial traders.