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 1.0748 as a possible entry point. Although the price rose to this level and made its false breakout, there were few of those eager to sell the euro. Given that the pair did not develop a quick move to the downside after a divergence following the retest of the daily high, I made a decision to exit the market. In the afternoon, increased presence at 1.0748 and its false breakout created a great entry point to sell the euro. As a result, the pair dropped by more than 30 pips.
COT report
Before discussing the future prospects of EUR/USD, let's review the developments in the futures market and the changes in the Commitments of Traders (COT). The COT report for October 31 showed a reduction in both long and short positions. This positioning was ahead of the crucial meeting of the US Federal Reserve, where the regulator decided to maintain its policy unchanged. However, weaker US labor market data, indicating less robust growth in new jobs, likely led to a more significant realignment of forces, unfortunately not yet reflected in this report. This type of statistics reinforces the idea among investors that the Fed will no longer raise interest rates and that the aggressive policy could be concluded as early as the beginning of next summer. This will continue to put pressure on the US dollar and lead to the strengthening of risk assets. According to the latest COT report, non-commercial long positions decreased by 4,735 to 210,834, while non-commercial short positions fell by 4,871 to stand at 125,445. As a result, the spread between long and short positions increased by 1,016. The closing price went down to 1.0603 from 1.0613.
For long positions on EUR/USD
Today, a new batch of macroeconomic data could potentially impact the European currency. We expect to see weak figures in German industrial production as well as the Eurozone producer price index (PPI). The worse the results, the lower the euro is likely to sink. However, it is fair to say that this could revive interest in EUR/USD thanks to a good correction after the vigorous growth last Friday. The formation of a false breakout around the new support level at 1.0695, slightly above which the moving averages are playing in favor of the sellers, will confirm a correct entry point for long positions, aiming for the resistance at 1.0724 that was formed yesterday. A breakout and a top-down test of this range will restore demand for the euro, giving a chance for further strengthening and a surge to 1.0753. The ultimate target will be the area of 1.0774 where I will be taking profits. If EUR/USD declines and there is no activity at 1.0695, bears will try to re-enter the market and offset the entire growth observed at the end of last week. In such a case, only the formation of a false breakout around 1.0669 will give a signal to buy the euro. I will be opening long positions on a rebound immediately from 1.0642 with the aim of an upward correction of 30-35 pips within the day.
For short positions on EUR/USD
Sellers showed excellent results yesterday in the second half of the day. They can count on further downward correction today only after weak data from the Eurozone. In the event of an upward movement, defending the new resistance at 1.0724 will be their priority. A false breakout there, combined with poor data and dovish statements from ECB representatives, will provide an entry point with a downward move to the nearest support at 1.0695, which is essential for buyers. Only after breaking through and consolidating below this range, as well as a bottom-up retest, do I expect to receive another signal to sell the pair with a target at 1.0669. The ultimate target will be the area of 1.0642 where I will be taking profits. In the event of an upward movement in EUR/USD during the European session and the absence of bears at 1.0724, which is only possible amid strong fundamental data from the Eurozone, bulls will try to continue the upward trend. In this case, I will postpone going short until the price hits the new resistance at 1.0753. It is also possible to sell at this point but only after a failed consolidation. I will be opening short positions immediately on a rebound from the high of 1.0774 with the aim of a downward correction of 30-35 pips.
Indicator signals:
Moving Averages
Trading below the 30- and 50-day moving averages indicates a correction in the euro.
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 1.0695 will act as support. In case of an advance, the upper ban of the indicator at 1.0753 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.