Yesterday, the pair formed only one signal to enter the market. Let's analyze what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0891 as a possible entry point. Growth and a false breakout at this level created a sell signal, but after all, this did not result in a major fall. In the afternoon, we could not get any good signals from the euro's surge.
For long positions on EUR/USD:
The surprise fall in the latest US ADP employment data exerted downward pressure on the dollar, which I repeatedly warned you about in yesterday's reviews. Considering how much the pair has recovered recently, we can expect the pair to correct higher with the prospect of building a new uptrend. But in order to do so, we need good eurozone data. And today several reports will be released. This morning, German retail sales and unemployment figures will draw interest. This will be followed by eurozone inflation figures that may move the market. Sticky inflation figures will put a definitive end to the debate on whether the European Central Bank will continue to raise rates in September or take a break. Everything will conclude with the release of the ECB's report from the monetary policy meeting held in July.
Considering the fact that the euro might come under pressure at any moment due to weak reports, it is best to act on a decline after a false breakout forms near the new support at 1.0908, formed at the end of yesterday. Currently, the area is marked by moving averages favoring bulls. This would provide a good entry point for long positions to continue the bullish correction towards the nearest resistance at 1.0938, in hopes of building a new trend. A breakout and a downward test of this range would strengthen demand for the euro, potentially pushing it towards a breakout to 1.0959. The ultimate target is found at 1.0982, where I will be locking in profits. If EUR/USD declines and bulls are idle at 1.0908, the bears will try to regain control of the market and win back all of yesterday's growth. Therefore, only a false breakout near 1.0877 would be a buy signal for the euro. I will initiate long positions immediately on a rebound from 1.0845, aiming for an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
Sellers continue to incur losses due to weak US reports, and there's nothing we can do about it. This morning, the focus will be on the resistance at 1.0938, formed at the end of the Asian session. Only weak German data and a sharp decline in eurozone inflation will allow the bears to defend 1.0938. Only a false breakout at this level would signal a selling opportunity and may potentially lead to a decline toward the support level of 1.0908. This is in line with the bullish moving averages. I anticipate a sell signal only after a breakout and sustained movement below this range, followed by an upward retest. This could pave the way for the pair to reach the 1.0877 target, where big buyers might emerge. The ultimate target is seen at 1.0845, where I will be locking in profits. If EUR/USD moves upward during the European session and lacks bearish activity at 1.0938, the bulls will keep control over the market. In this scenario, I would only go short when the price hits the new resistance at 1.0838. Selling at this point is possible only after a failed consolidation. I will initiate short positions immediately on a rebound from the high of 1.0982, considering a downward correction of 30-35 pips within the day.
COT report:
The COT report for August 22 recorded a rise in both long and short positions. Considering the release of rather weak PMI data in the US, indicating economic contraction, as well as hawkish comments from Federal Reserve Chairman Jerome Powell during the Jackson Hole Symposium, it is not surprising that there were slightly more short positions than the long ones. However, the decline in the euro presents an attractive opportunity for traders, and the optimal medium-term strategy in the current conditions remains to buy risk assets on dips. According to the COT report, non-commercial long positions increased by 6,925 to reach 239,391, while non-commercial short positions jumped by 8,028 to 80,028. As a result, the spread between long and short positions decreased by 3,173. The closing price dropped to 1.0866 from 1.0922, indicating a bearish market sentiment.
Indicator signals:
Moving averages:
Trading above the 30- and 50-day moving averages indicates that the bulls have the upper hand.
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 1.0885 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.