Yesterday, the pair formed several entry signals. Let's take a look at the 5-minute chart and discuss what happened. In my previous forecast, I focused on the level of 1.0850 and recommended making market entry decisions based on it. A rise and false breakout at 1.0859 generated a sell signal for continuing the downtrend. As a result, the pair fell by more than 30 pips. The bulls succeeded in defending 1.0814, which led to a correction of 20 pips. In the afternoon, a false breakout at 1.0814 produced a buy signal, which resulted in consolidating losses, as the pair continued to fall.
COT report:
Before discussing the outlook for EUR/USD, let's see what happened in the futures market and how the Commitment of Traders positions changed. In the COT report (Commitment of Traders) for January 23, there was a decrease in long positions and an increase in short positions, indicating a shift in favor of the US dollar. After the European Central Bank meeting, where the central bank made it clear that they plan to lower interest rates as early as this summer, the euro came under pressure again. Buyers have nothing to worry about, as the strong US economy allows the Federal Reserve to stick to its tough policy without fearing a recession, unlike the eurozone economy. The Federal Open Market Committee meeting will be held this week, afterwards it will be clear what the US central bank plans to do with its policy. The COT report indicated that long non-commercial positions fell by 9,104 to 195,190, while short non-commercial positions increased by 6,664 to 106,866. As a result, the spread between long and short positions increased by 1,179.
For long positions on EUR/USD
Today, a lot of reports related to the GDP of eurozone countries are scheduled for release in the first half of the day. These are GDP data on Germany, France, Italy, and the eurozone. The Eurozone Consumer Confidence Indicator for January may also offer fresh impetus, as well as the speech of ECB Executive Board member Joachim Nagel. If the data disappoints traders, the pair may come under pressure, and I plan to take advantage of it. Of course, trading against the new downtrend is not the best idea, so we should be cautious. Forming a false breakout near the nearest support at 1.0812, established yesterday, would be a suitable option for me to enter the market with the goal of helping the pair recover to 1.0848. Just below this level, we have the moving averages that favor the bears. A breakout and a downward test of this range will create an entry point for long positions, making it possible for us to test the high near 1.0885. The ultimate target is found at 1.0931, where I plan to take profits. Should EUR/USD decline and show no activity at 1.0814, which is most likely the case, sellers will maintain control of the market. In this case, I will try to enter the market after a false breakout forms near the next support at 1.0780. I would consider opening long positions on a rebound from 1.0744, aiming for an upward correction of 30-35 pips within the day.
For short positions on EUR/USD:
In the first half of the day, the bears must prevent the pair from going beyond the new resistance at 1.0848, as this level may be tested in the near future after the release of good eurozone data. Safeguarding 1.0848 would signal a selling opportunity in continuation of building a bearish market, aiming for the target in the area of 1.0812 - intermediate support. Only after a breakout and consolidation below this range, as well as an upward retest, do I expect another sell signal, and the pair could fall to 1.0780 - a new monthly low. The ultimate target here is 1.0744, where I plan to take profits. A test of this level will strengthen the downtrend. In case EUR/USD moves upwards during the European session without bearish activity at 1.0848, buyers will aim for the 1.0885 high. It is also possible to sell there but only after a false breakout. I plan to initiate short positions on a rebound from the 1.0931, aiming for a downward correction of 30-35 pips.
Indicator signals:
Moving averages:
Trading below the 30- and 50-day moving averages indicates a possible decline in the pair.
Please note that the time period and levels of the moving averages are analyzed only for the 1H chart, which differs from the general definition of the classic daily moving averages on the 1D chart.
Bollinger Bands
If EUR/USD declines, the indicator's lower border near 1.0800 will serve as support. In case it grows, the upper band of the indicator at 1.0848 will act 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.