Yesterday, the pair formed several entry signals. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0603 as a possible entry point. A rise and a false breakout at this mark formed a sell signal. As a result, the pair fell by more than 20 pips. In the afternoon, it was the same thing, which sent the pair down by another 20 pips, afterwards the demand for the euro returned.
COT report:
Before discussing the prospects of the EUR/USD pair, let's examine what has been going on in the futures market and how the positions in the Commitments of Traders have changed. The COT report for October 17 showed an increase in long positions and a decrease in short ones. The US continued to release fairly strong economic indicators, including retail sales and the labor market, indicating the need for additional interest rate hikes. However, before the Federal Reserve blackout period, which limits the extent to which FOMC participants and staff can speak publicly, a number of statements from Fed officials has convinced the market that the central bank will not raise rates in November. This weakened the demand for the dollar and boosted buyers' confidence. The COT report reveals that non-commercial long positions increased by 6,791 to 214,313, while non-commercial short positions declined by only 87 to 131,903. This resulted in the spread between long and short positions shrinking by 2,445. The closing price declined to 1.0596 compared to 1.0630, confirming the euro's upward correction.
For long positions on EUR/USD:
Yesterday, the euro was able to recover in the absence of economic reports. But today, weak eurozone reports on Manufacturing and Services PMIs, as well as the composite PMI may exert pressure on the single currency. On the other hand, European Central Bank President Christine Lagarde's speech may tackle monetary policy, which will surely support the euro. Hence, an optimal buying opportunity might arise on dips, particularly after a false breakout near the new support level at 1.0664. This will serve as a confirmation of a correct entry point for long positions aiming for a recovery towards the new resistance at 1.0700. A breakout and a downward retest of this range will bring back the demand for the euro, and can pave the way for a surge up to 1.0734. The ultimate target is found at 1.0774 where I plan to take profits. If EUR/USD declines and shows a lack of activity at 1.0664, the bears will try to return to the market. In such a scenario, only a false breakout near 1.0629, which is in line with the bullish moving averages, would provide an entry signal. I would immediately go long on a bounce from 1.0593, aiming for an intraday upward correction of 30-35 pips.
For short positions on EUR/USD:
Yesterday, sellers tried to defend their positions, but buyers were more assertive in the second half of the day. Considering that the bears have already missed the market, the pair will only be able to correct higher after weak eurozone data. In case the pair rises further, it is critical for the bears to defend the new resistance at 1.0700. A false breakout there along with soft remarks from Lagarde will provide an entry point, targeting the nearest support level at 1.0664, which the buyers will not miss. 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 1.0629. The furthest target is 1.0593, where I plan to take profit. If EUR/USD moves upward during the European session and lacks bearish activity at 1.0700, and good eurozone data may even provide support, the bulls will try to continue the upward correction. In such a scenario, I would delay short positions until the price hits the new resistance at 1.0734. 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 1.0774, considering a downward correction of 30-35 pips.
Indicator signals:
Moving averages:
Trading above the 30- and 50-day moving averages indicates an attempt to develop an uptrend.
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 1.0530 will serve as support. In case of growth, the indicator's upper border at 1.0705 will serve as resistance.
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.