Yesterday, the instrument formed several market entry signals. Let's look at the 5-minute chart and figure out what actually happened. In my morning forecast, I turned your attention to the level of 1.0911 and recommended making decisions with this level in focus. A decline and false breakout at 1.0911 generated a buy signal. As a result, the pair rose by 40 pips. In the second half of the day, protecting the support level at 1.0953 produced a good sell signal, and traders could take about 30 more pips of profit from the market.
Yesterday's weak data on activity in the US services sector limited the pair's potential to fall. The US labor market will probably set today's mood. This will be released in the afternoon. During the European session, I advise you to pay attention to the reports on the industrial orders in Germany, France and Italy, as well as the retail trade in the euro area. These reports are for June, so we can't count on a volatility surge. But a sharp decline in the indicators will increase the pressure on the pair, which has been experiencing big problems lately.
For this reason, I would advise you not to rush to open long positions. It would be appropriate to trade against the bearish trend only after the drop from the support level of 1.0915. Only after the formation of a false breakout, it will be possible to get a buy signal based on an upward movement. The pair is likely to hit the resistance level of 1.0966. A breakout and a downward retest of this range amid strong data will boost demand for the euro. It may return to a high of 1.1015, but the pair will hardly be able to climb higher before the release of the US labor market report. A more distant target will be the 1.1063, where I will take profits.
If EUR/USD declines and bulls fail to defend 1.0915, which is likely in the afternoon, bulls could lose control. In this case, only a false breakout of the support level of 1.0871 will provide new entry points into long positions. You could buy EUR/USD at a bounce from the 1.0836 low, keeping in mind an upward intraday correction of 30-35 pips.
For short positions on EUR/USD:Sellers still have a chance of maintaining a bear market as long as trading is conducted below the 1.0966 level. This level is very important. If they fail to defend it, the bulls will regain ground at the end of the week and will try to push the pair in the sideways channel. In case of a rise in EUR/USD, I plan to open short positions only after a false breakout of 1.0966 where the moving averages are passing in negative territory. All this could lead to a fall to the support level of 1.0915, which was formed yesterday. Only after a breakout and consolidation below this level as well as an upward retest due to weak EU reports, there might be a sell signal. The pair is likely to dip to 1.0871. This will indicate the formation of a bearish trend. A more distant target will be the 1.0836 level where I recommend locking in profits.
If EUR/USD rises during the European session and bears fail to protect 1.0966, which is possible, the bulls will try to regain control of the market before the US reports are released. In this case, I would advise you to postpone short positions until a false breakout of the resistance level of 1.1015. You could sell EUR/USD at a bounce from the 1.1063 high, keeping in mind a downward intraday correction of 30-35 pips.
COT report:According to the COT report (Commitment of Traders) for July 25, there was a sharp decline in both long and short positions before the meetings of the Federal Reserve System and the European Central Bank. However, the last report was published after the rate decisions. So, it does not reflect the real situation. The rate decisions were in line with the expectations. As a result, there was no surge in volatility. However, the situation changed after the release of US macro stats, indicating the resilience of the American economy in the 2nd quarter. Despite the downward correction, in the medium term, it is better to go long on the decline. The COT report showed that long non-profit positions decreased by 13,867 to 250,647, while short non-profit positions fell by 12,265 to 73,417. As a result, the spread between long and short positions increased by 6,350, which is rather favorable for the bulls. The closing price dropped to 1.1075 against 1.1300 a week earlier.
Moving averages:
Trading is taking place around the 30-day and 50-day moving averages, indicating a sideways market trend.
Note: The author considers the period and prices of the 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
If EUR/USD declines, the indicator's lower border at 1.0925 will serve 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.