Yesterday, the pair formed several good signals to enter the market. Let's analyze what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0869 as a possible entry point. A decline and false breakout of this level in the absence of important eurozone data generated a buy signal. As a result, the pair rose by more than 40 pips. During the US session, returning below the 1.0896 level and a retest formed a sell signal, afterwards the pair fell by more than 40 pips, hitting new monthly lows.
For long positions on EUR/USD:
Good US data boosted the demand for the US dollar and added pressure on the euro. The main item for today is the eurozone inflation data. If annual inflation shows a much bigger slowdown than expected, the pair will remain under pressure, which will lead to another sell-off with the renewal of monthly lows. Considering how aggressive the bears were after the pair tried to rise, it would be best to act against the bear market after a decline and a false breakout near the nearest support level at 1.0866. This will form a good entry point to buy the euro, with a prospect to reach the resistance level at 1.0893, formed at the end of yesterday. A breakout and test of this range will boost the demand for the euro, giving it a chance to continue correcting higher to 1.0616. The ultimate target remains the area of 1.0951 where I will be locking in profits. If EUR/USD declines and there is no buying activity at 1.0866, the bearish market will persist. In this case, only the formation of a false breakout near the next support level at 1.0836 will present an opportunity to buy the euro. I will open long positions immediately on a rebound from the low of 1.0808, considering an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
For today, sellers have the opportunity to maintain pressure on the pair, but they need to make sure that they are active in the area of the new resistance level at 1.0893, which will be tested in the near future. A false breakout there, coupled with weak data from the eurozone, will give a sell signal leading to another drop to the support at 1.0866. A breakthrough and consolidation below this range, followed by an upward retest, can signal a selling opportunity, paving the way to the low of 1.0836. An update of this mark will signal a good bear market. The ultimate target lies at 1.0808 where I will be looking to lock in profits.
If EUR/USD trends upward during the European session and if no selling activity is observed at 1.0893, which is possible, bulls will attempt to regain control of the market. In such a scenario, I would wait until the price hits the next resistance at 1.0916, formed at the end of yesterday. I would also consider selling there, but only after a failed consolidation above this level. I will go short immediately on a pullback from the high of 1.0951, keeping in mind a downward correction of 30-35 pips.
COT report:
The Commitments of Traders report for August 8 indicated a decrease in long positions and a rise in short ones. This shift occurred prior to the release of crucial inflation data from the US. In theory, this data should have provided clarity regarding the forthcoming policies of the Federal Reserve. However, it didn't play out that way. Prices in the US rose again in July, laying the groundwork for potential further rate hikes by the regulator. Despite this, the decline in the euro presents an appealing opportunity. Regardless of the mentioned data, the optimal medium-term strategy in the current conditions remains buying risk assets on dips. The COT report highlighted that non-commercial long positions decreased by 12,026 to 228,048, while non-commercial short positions increased by 10,225, reaching 78,237. As a result, the spread between long and short positions narrowed by 1,891. The closing price dropped to 1.0981 from 1.0999 recorded in the previous week.
Indicator signals:
Moving averages:
Trading is taking place around the 30-day and 50-day moving averages, indicating 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 EUR/USD declines, the indicator's lower border near 1.0860 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.