In my morning forecast, I highlighted the importance of the 1.1042 level and recommended using it as a basis for making entry decisions. Let's examine the 5-minute chart and analyze the events. The euro rose in the first half of the day, driven by data indicating the recovery of the European economy in the second quarter of this year. However, we didn't quite reach the specified level of 1.1042, so no entry signals were generated. The technical situation changed in the second half of the day.
To initiate long positions on EUR/USD:
Buyers cautiously approached the Eurozone's GDP growth compared to the first quarter of this year and the year-on-year contraction, which limited the potential upside of the pair. Inflation pressure in the Eurozone aligned with economists' expectations, leading to relatively low volatility. In the second half of the day, only the Chicago PMI report will be released, and if the data turns out weak, it could push the euro higher, prompting a retest of Friday's highs. In case of positive data, the euro may face renewed pressure, and buyers could take advantage of that.
I will consider opening long positions in the second half of the day only after a decline and the formation of a false breakout around 1.1014, signaling a buy with the target of renewing the new resistance at 1.1062. A breakout and test below this range after weak PMI data would offer the euro an opportunity for further growth, aiming to reach the maximum at 1.1106. The ultimate target remains the area of 1.1147, where I would take profits. However, if EUR/USD declines and no significant activity occurs at 1.1014, which is likely, the outlook for buyers may worsen. Only the formation of a false breakout around the intermediate support level at 1.0983 would indicate a buy signal for the euro. In that case, I would consider opening long positions immediately after a rebound from last week's minimum at 1.0946, targeting a 30-35 point correction within the day.
To initiate short positions on EUR/USD:
Sellers still have a chance to regain control of the bearish market, but they need to be more proactive following the retest of last Friday's high, which is currently underway. Only in the case of a false breakout at 1.1062 will I consider opening short positions with the target at 1.1014 - the new support formed in the first half of the day, where the moving averages, supporting the bulls, are also located. A breakout and test above this range, supported by strong data from the USA, would signal a selling opportunity, leading directly to 1.0983. Testing this level would confirm the establishment of a bearish trend. The ultimate target would be the area of 1.0946, where I would take profits. If EUR/USD shows an upward movement during the American session and bears are absent at 1.1062, which is unlikely, bulls will attempt to continue the pair's growth, seeking to compensate for last week's decline triggered by the US GDP data. In that scenario, I would postpone short positions until the next resistance at 1.1106. Selling there is also possible, but only after an unsuccessful consolidation. I will consider opening short positions immediately after a rebound from the maximum of 1.1147, aiming for a 30-35 point downward correction.
The COT report (Commitment of Traders) for July 18 showed an increase in both long and short positions. However, buyers outnumbered sellers, consolidating their market positioning. The release of inflation data in the USA led to purchasing of risk assets, including the euro. Additionally, last week's statements by ECB representatives, hinting at the potential easing of the tight policy in the Eurozone, further reinforced expectations and bets on the euro's growth against the dollar. The Fed meeting will occur this week, where monetary policy decisions will be made. Many economists expect it to be the last rate hike in the regulator's nearly one-and-a-half-year cycle of rate increases. This will further weaken the dollar. The ECB meeting is likely to adopt a hawkish stance. As long as the market remains bullish, the optimal medium-term strategy in the current conditions is to buy the euro on dips. The COT report indicates that long non-commercial positions increased by 40,163 to 264,514, while short non-commercial positions rose by only 1,493 to 85,682. The overall non-commercial net position increased to 178,000 from 140,162. The weekly closing price rose to 1.1300 from 1.1037.
Indicator signals:
Moving averages.
Trading is conducted slightly above the 30-day and 50-day moving averages, indicating market equilibrium.
Note: The author considers the period and prices of moving averages on the hourly chart (H1), which differs from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands
In case of an upward trend, the upper boundary of the indicator around 1.1040 will act as resistance.
Description of indicators:
• Moving average (determines the current trend by smoothing volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing volatility and noise). Period 30. Marked in green on the chart.
• MACD indicator (Moving Average Convergence/Divergence - measures the convergence/divergence of moving averages). Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20.
• Non-commercial traders - speculators, such as individual traders, hedge funds, and large institutions, using the futures market for speculative purposes and meeting specific 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.
• The overall non-commercial net position is the difference between non-commercial traders' short and long positions.