Last Friday, the pair formed several signals to enter the market. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0620 as a possible entry point. A fall to this level and its false breakout served as a signal to buy the euro. As a result, the euro went up by more than 30 pips. In the afternoon, a false breakout of 1.0672 generated a sell signal, sending the pair down by 30 pips.
For long positions on EUR/USD:
The recent sharp decline in the euro came after weak business activity data showed a decline in the Eurozone's service and manufacturing sectors. Nevertheless, the presence of buyers around monthly lows has helped stabilize the market. Today, we anticipate the release of the IFO's business climate index, the assessment of the current situation, and economic expectations from Germany. Positive figures could bolster bullish momentum, defending the mid-range of the sideways channel at 1.0645. A false breakout there could offer a good entry point into long positions, with a prospect of an upward correction and a target at the 1.0672 resistance level that the price failed to breach last Friday. A breakout and a downward retest of this range could revive the demand for the euro, aiming for a surge to 1.0704. An ultimate target is found at 1.0734 where I will be taking profit. Should EUR/USD continue its decline and show inactivity at 1.0645, exacerbated by poor German data, the bearish trend might persist. In such a scenario, only a false breakout around 1.0620 would signal a market entry. I will initiate long positions immediately on a rebound from 1.0590, considering an upward intraday correction of 30-35 pips.
For short positions on EUR/USD:
Bears continue to dominate the market. For a bearish trend to flourish, the sellers need to receive downbeat data from Germany. Moreover, they will have to defend the nearest resistance at 1.0672. A false breakout at this level could offer an excellent short entry, with a possible decline to 1.0645 where the moving averages converge. Only after breaching this range and retesting it from below would I anticipate another sell signal, aiming for 1.0620 and 1.0590 - the new monthly low where significant buyers might emerge. An ultimate target lies at 1.0554, where I will look to lock in profits. If EUR/USD trends upward during the European session and lacks a bearish presence at 1.0672, bulls might regain control. In such a scenario, I would postpone selling the pair at least until the price hits a new resistance at 1.0704. Short trades could also be considered there but only after a failed consolidation. I will initiate short positions immediately on a rebound from the high of 1.0734, considering a downward correction of 30-35 pips.
COT report
The Commitments of Traders report for September 12 revealed a sharp drop in long positions and a modest decline in the long ones. This decline can be attributed to some significant negative developments in the Eurozone economy and a downward revision of the GDP for the second quarter. Despite these setbacks, the European Central Bank (ECB) made a decision to hike interest rates. Such a move in the given scenario could have unfavorable implications in the near term and it might have triggered a sharp depreciation of the European currency. In the coming days, all eyes will be on the Federal Reserve's meeting. Should the committee also decide to increase rates, the euro could face further declines against the dollar. Therefore, it would be wise to exercise caution before making any purchases in the current environment. The COT report indicates a drop in non-commercial long positions by 23,356 to 212,376. On the other hand, non-commercial short positions saw a minor decrease of 205, standing at 99,296. Consequently, the spread between long and short positions expanded by 6,589. The closing price fell to 1.0736 compared to the previous value of 1.0728, signaling a bearish market trend.
Indicator signals:
Moving Averages
Trading around the 30- and 50-day moving averages indicates a range-bound market.
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 the pair declines, the lower band of the indicator at 1.0630 will act 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.