Yesterday, the pair formed several excellent entry signals. Let's see what happened on the 5-minute chart. In my morning review I mentioned the level of 1.0732 as a possible entry point. A decline and a false breakout at the 1.0732 level produced a buy signal, but after rising by 7 pips, the currency pair came under pressure. The European Central Bank's decision to raise interest rates along with revised downward forecasts for inflation and the economy caused a EUR/USD sell-off in the U.S. session. The bulls defending the 1.0665 support produced a buy signal, but after correcting higher to 1.0700, the currency pair came under pressure again. Selling from 1.0700 could also bring 40 pips of profit.
For long positions on EUR/USD:
The risk of recession in the eurozone is greater than ever. Interest rate hikes by the ECB to further fight inflation have only confirmed how difficult their situation is. Yesterday's US retail sales data, which jumped sharply in August, only increased demand for the US dollar, as the Federal Reserve is likely to increase borrowing costs by another quarter point next week.
Today, traders now look to the release of the Italian Consumer Price Index and French CPI for some impetus. Also, ECB President Christine Lagarde will deliver a speech closer to the middle of the day, but we are unlikely to hear anything new. I will act on a decline and defense of the nearest support at 1.0633. A false breakout around that mark, along with divergence on the MACD indicator will confirm the entry point for long positions, in hopes of building an upward correction and updating the nearest resistance at 1.0674. A breakout and a downward test of this range, bolstered by good data from the eurozone, will increase demand for the euro, providing a chance for a surge to 1.0711. The furthest target would be the 1.0746 area, where I plan to take profits If EUR/USD declines and there is no activity at 1.0633, bears will retain market control. In such a case, only a false breakout near 1.0595 will signal a buying opportunity. I will open long positions directly on a rebound from 1.0554, aiming for an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
Sellers continue to dominate the market. All they need to focus on in the first half of the day is defending the level of 1.0674, where the moving averages may pull up by the time the pair rises. Lack of initiative from the buyers and a false breakout at 1.0674 will give a sell signal in extending the trend, paving the way towards the monthly low of 1.0633. Only after breaching this range and settling below it, and after completing an upward retest, do I anticipate another sell signal with a target at 1.0595, where I expect significant buyer activity. The furthest target is the 1.0554 area, where I plan to take profit. If EUR/USD moves upwards during the European session and bears are absent at 1.0674, bulls will have a chance to recover yesterday's losses. In such a scenario, I would delay short positions until the price hits the new resistance at 1.0711. I would also consider selling there but only after an unsuccessful consolidation. I will open short positions directly on a rebound from the high of 1.0746, considering a downward correction of 30-35 pips.
COT report:
The Commitments of Traders (COT) report for September 5 displayed an increase in both long and short positions. Pronounced negative shifts in the Eurozone's economic activity, coupled with downward revisions of the GDP data for the second quarter, have augmented short positions for the trading instrument. Amplifying this sentiment, statements from the Federal Reserve representatives hinting at potential rate hikes in the US explain why the US dollar is surging while the European currency is losing ground. In the immediate horizon, crucial US inflation figures are on tap, poised to influence the future course of monetary policy and affect the direction of EUR/USD. Notably, as the euro is declining, we can observe an increase in long positions, reflecting the improved appetite of risk-asset buyers at these comfortable price levels. The COT report shows that non-commercial long positions rose by 5,190 to 235,732, while non-commercial short positions surged by 15,638, reaching 99,501. Consequently, the spread between long and short positions expanded by 4,533. The closing price declined to 1.0728 from 1.0882, signaling a bearish market trend.
Indicator signals:
Moving averages:
The instrument is trading below the 30 and 50-day moving averages. It indicates a possible decline in EUR/USD.
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 1.0595 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.