Yesterday, the pair formed several entry signals. Let's see what happened on the 5-minute chart. In my morning review I mentioned the level of 1.0772 as a possible entry point. A breakout and upward retest of this range generated a sell signal. As a result, the pair fell by more than 30 pips. In the afternoon, an attempt to protect 1.0734 had failed, and a buy signal resulted in a loss.
For long positions on EUR/USD:
Lower services PMI indexes from Europe and a downward revision for August had exerted downward pressure on the euro. In the afternoon, EURUSD was still under pressure, since there was no reason to buy risky assets amid fears of the European economy slowly sliding into recession. This morning, traders will monitor the eurozone retail sales for July. The figure is expected to extend its contraction. On the one hand, this is good for inflation, which will continue to slow. On the other hand, all this points to a further slowdown in economic growth, and this is bad for the euro in the medium term.
Considering the bear market, I intend to act on dips only after a false breakout at the new support level at 1.0772. Divergence on the MACD indicator during the test of 1.0772 will serve as a confirmation of a correct entry point for long positions aiming for a recovery towards the 1.0748 resistance, which performed flawlessly yesterday. This is in line with the bearish moving averages. A breakout and a downward test of this range amid good retail sales data, will bolster demand for the euro, offering it a chance to spike to 1.0772. The ultimate target will be 1.0798, where I will lock in profits. In the event of EUR/USD dropping and a lack of activity at 1.0709, the bears will retain market control. In such a scenario, only the formation of a false breakout around 1.0669 will give a buy signal. I will open long positions immediately on a rebound from 1.0637, considering an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
Sellers are still in control of the market and all they need to do in the first half of the day is protect 1.0748. Another batch of weak eurozone data will allow the bears to defend this mark. A false breakout there will provide an entry point and may potentially lead to a decline toward the new support level of 1.0707. Only after a breakout and consolidation below this range, followed by an upward retest, do I expect to receive another sell signal targeting 1.0669. This is where large buyers may step in. The ultimate target will be 1.0637, where I will lock in profits. If EUR/USD moves upward during the European session and bears show no activity at 1.0748, bulls will get a chance to build an upward correction against the bear market. Under such circumstances, I will postpone selling the pair until the price hits the new resistance at 1.0772. Selling there is also an option, but only after a failed consolidation. I will initiate short positions immediately on a pullback from the 1.0798 high, considering a downward correction of 30-35 pips.
COT report:
The COT report for August 29 indicates a reduction in long positions and an increase in short ones. Such market shifts mirror the hawkish remarks made by the Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium. The recently released data on the US Personal Consumption Expenditures Index and the labor market have further convinced investors that the Fed might need to hike rates once more, thus preserving the dollar's allure. Interestingly, the euro's decline offers a compelling point of entry. In the present circumstances, an optimal medium-term strategy remains to buy risk assets on dips. The COT report reveals that the non-commercial long positions decreased by 8,849 to stand at 230,542, while the non-commercial short positions jumped by 3,232 to 83,863. Consequently, the spread between long and short positions expanded by 4,753. The closing price dropped to 1.0882 from 1.0866, indicating a bearish market.
Indicator signals:
Moving averages:
Trading is occurring below the 30 and 50-day moving averages, indicating that the pair is under pressure.
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 1.0709 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.