Last Friday, the pair formed several good 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 1.0532 as a possible entry point. A decline to this level and its false breakout generated a good entry signal to buy the euro which resulted in a rise of only 30 pips. In the afternoon, a false breakout at 1.0560 formed a sell signal, sending the pair down by more than 60 pips. A rebound to 1.0504 and its retest from above that occurred after the release of the US jobs report created another buy signal, pushing the price upwards by more than 80 pips.
For long positions on EUR/USD
Strong nonfarm payrolls in the US sent the euro down on Friday but the bulls managed to recover lost positions rather quickly, hinting at a possible formation of a bullish trend. The jobs data revealed a strong US labor market, thus supporting market expectations of another rate hike by the Fed in November. But as we can see on the chart, this scenario has already been priced in by the market which explains why we might not see a deeper drop in the pair. The further trajectory of the pair will largely depend on the incoming inflation report in the US. As for today, I plan to act on a decline at the support of 1.0535 above which the moving averages support the bulls. A false breakout at this point will create a good entry point into long positions with the aim of building an upside correction towards the 1.0574 resistance level. Breaking and testing this range from above will provide an opportunity for a surge towards 1.0609, given that ECB officials make statements. My ultimate target is the 1.0644 area where I intend to take profits. If EUR/USD declines and there is no buying activity at 1.0535, the pressure on the euro will return although it would be too early to declare the onset of the bearish trend. In this case, only a false breakout near 1.0486 will signal a buying opportunity. I will initiate long positions immediately on a rebound from 1.0451, aiming for an upward intraday correction of 30-35 pips.
For short positions on EUR/USD
Sellers continue to weigh down on the euro in an attempt to restore the bear market. A strong presence at the nearest resistance of 1.0574 formed in the Asian session and a false breakout there will generate a sell signal, with a prospect of a decline towards the 1.0535 support. A breakout and consolidation below this range amid the lack of news from the eurozone, as well as its upward retest, will give another sell signal with the target at the 1.0504 low where large buyers asserted their strength several times on Friday. The ultimate target will be the 1.0451 level where I will take profits. If EUR/USD rises during the European session and bears are absent at 1.0574, bulls might get a chance to develop an upward correction. In this scenario, I will delay going short until the price hits the resistance at 1.0609. I may consider selling there but only after a failed consolidation. I will go short immediately on a rebound from the 1.0644 high, aiming for a downward correction of 30-35 pips.
COT report
The COT report for September 26 showed a rise in both long and short positions, with the latter being almost twice as many. Adverse shifts in the Eurozone's economic landscape and looming threats of further interest rate hikes by the European Central Bank (ECB) have bolstered the prevailing bearish sentiment. Statements by ECB President Christine Lagarde were quite hawkish. Even the news about slowing inflation in August failed to help the euro withstand pressure from large sellers. A cheaper euro looks more appealing to traders in the medium term which is confirmed by the rise in long positions. The COT report indicates that non-commercial long positions jumped by 4,092 to stand at 211,516, while non-commercial short positions saw an increase of 7,674, reaching a total of 113,117. As a result, the spread between long and short positions increased by 1,216 contracts. The closing price dropped to 1.0604 from 1.0719, further underscoring the bearish market sentiment for EUR/USD.
Indicator signals:
Moving Averages
Trading above the 30- and 50-day moving averages indicates that buyers are trying to continue correction.
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 1.0510 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.