In my morning forecast, I highlighted the level of 1.0773 and recommended making entry decisions based on it. Let's take a look at the 5-minute chart and analyze what happened there. The breakout and the reverse test of 1.0773 in the first half of the day led to a good buy signal for the euro. As a result, at the time of writing this article, the pair had risen by about 20 points. The technical picture was not reassessed for the second half of the day.
To open long positions on EUR/USD, the following is required:
Good data from Germany and an improvement in several indicators from ZEW led to the growth of the euro, as many market participants continue to bet on a decline in US inflation and a reversal of the Federal Reserve's soft policy. In the second half of the day, we will find out the inflation rate in the US for November. If prices continue to move down, the path for the euro to go up is open. If the figures demonstrate growth, then most likely, the pressure on the pair will return. We are ready for all scenarios. In the case of a pair decline, only the formation of a false breakout around 1.0773, similar to what I analyzed above, will provide an entry point for long positions, counting on the recovery of EUR/USD and a test of resistance at 1.0816, where the pair is heading now. A breakout and an update from top to bottom will give a buy signal and a chance to build a more powerful upward correction, completing the bear market and updating 1.0842. The ultimate target will be the area of 1.0869, where I will make a profit. In the case of a decline in EUR/USD and a lack of activity at 1.0773 in the second half of the day, which is quite likely after a sharp rise in inflationary pressure, we can talk about the continuation of the downtrend. In this case, I plan to enter the market only after the formation of a false breakout around 1.0726 – a new local minimum. I will consider opening long positions immediately on a rebound from 1.0698 with the target of an upward correction within the day by 30-35 points.
To open short positions on EUR/USD, the following is required:
Sellers tried, but as long as the euphoria of low-interest rates hangs in the air, no one will buy the dollar. To develop a downtrend, it is necessary to protect 1.0816, where the pair is currently heading. Only the formation of a false breakout after the release of data on the US Consumer Price Index will signal a sell-off with a decrease to support at 1.0773 – the middle of the sideways channel, of an intermediate nature. After breaking and consolidating below this range, as well as a reverse test from bottom to top, I expect to get another sell signal with an exit to 1.0726. The ultimate target will be the minimum of 1.0698, where I will take a profit. In the case of an upward movement of EUR/USD during the American session, as well as the absence of bears at 1.0816, buyers will be able to stop the bear market and restore balance. This will open the way to 1.0842. It can be sold there, but only after an unsuccessful consolidation. I will consider opening short positions immediately on a rebound from 1.0869 with the target of a downward correction of 30-35 points.
In the COT report (Commitment of Traders) for December 5, there was an increase in long positions and another significant reduction in short ones. The December meeting of the US Federal Reserve will be decisive for the dollar, and after the statements of the politicians, it will become clear in which direction the regulator is ready to move. A soft stance on rates next year will lead to a turnaround in the bear market for the euro and an increase in the pair. A tough stance, with strong inflation, will keep demand for the dollar for some time but is unlikely to significantly affect the long-term balance of power in favor of buyers of risky assets. The COT report states that long non-commercial positions increased by 2,230 to 235,684, while short non-commercial positions decreased by 6,965 to 83,324. As a result, the spread between long and short positions increased by 8,165.
Indicator signals:
Moving averages
Trading is carried out above the 30 and 50-day moving averages, indicating an attempt by the euro to return to growth.
Note: The period and prices of moving averages are considered by the author on the hourly H1 chart and differ from the general definition of classic daily moving averages on the daily D1 chart.
Bollinger Bands
In the case of a decline, the lower boundary of the indicator around 1.0740 will act as support.
Indicator Descriptions:
Moving Average (MA) - defines the current trend by smoothing volatility and noise. Period 50. Marked on the chart in yellow.Moving Average (MA) - defines the current trend by smoothing volatility and noise. Period 30. Marked on the chart in green.Moving Average Convergence Divergence (MACD) - Fast EMA period 12, Slow EMA period 26, SMA period 9.Bollinger Bands - consists of three lines: the middle line is the moving average, and the upper and lower lines are standard deviations of the price.Non-Commercial Traders - speculators, such as individual traders, hedge funds, and large institutions, using the futures market for speculative purposes and meeting specific requirements.Long Non-Commercial Positions - represent the total long open positions of non-commercial traders.Short Non-Commercial Positions - represent the total short open positions of non-commercial traders.Total Non-Commercial Net Position - is the difference between non-commercial long and short positions.