FX.co ★ EUR/USD: trading plan for American session on January 12 (overview of morning trade). Bears assaulting 1.2174 aiming to test low of 1.2130

What is needed to open long positions on EUR/USD

In the first half of the trading day, EUR/USD generated two signals to sell the euro. Let's look at a 5-minute chart to figure out morning trade. In my morning review, I recommended opening short positions on EUR/USD after the pair had formed fresh resistance at 1.2174. This is what actually happened. Indeed, the bears were very active during the first test, but the market entry point could have been rather inconvenient. The second test of 1.2174 ended up with the formation of a practical signal for selling EUR. The price has moved over 35 pips since the morning. Nevertheless, the bears are unwilling to leave the market. Let's try to figure out what we can expect in the second half of the trading day.

From the technical viewpoint, the market conditions for EUR bulls remain the same. Italy's retail sales data has been neglected by the market. The economic calendar contains no other market catalysts. The bulls have to decide how to retrieve the level of 1.2174. As long as the pair is trading below this level, the odds are that EUR will extend its fall. The lack of important fundamental data in the second half of the day could be beneficial for EUR sellers. So, only a breakout and a test of 1.2174 downwards could trigger a signal to open new long positions on EUR/USD betting on the price growth to resistance of 1.2224.

A more distant target for EUR bulls remains the high of 1.2281 where I recommend profit taking. However, the pair needs weighty arguments for growth. Remarks of Fed's officials will hardly be market moving events. If the bears continue pushing EUR downwards, I recommend we should refrain from buying EUR, but wait until the pair forms new support at 1.2130 and a fake breakout happens there. It would be better to open long positions immediately during a bounce from a low of 1.2083 bearing in mind an upward intraday correction of 20-30 pips.

What is needed to open short positions on EUR/USD

We can give a thumbs-up to EUR bears as they perfectly managed to defend resistance at 1.2174. As long as the pair is trading below this level, the odds are that EUR will extend its fall. The first downward target of EUR/USD will be support of 1.2130 where the buyers will make efforts to enter the market. Nevertheless, the pair needs to break and fix below the level of 1.2130 to cement the downtrend. The lack of fundamental statistics today could help traders maintain the downtrend generated last week. A test of 1.2130 upwards will make a good signal to open short positions that will open the door to lows at 1.2083 and 1.2042 where I recommend profit taking. If in the second half of the day the pair rebounds again to resistance at 1.2174 and the bears do not reveal strong activity there, it would be better to refrain from short positions at that level because the buyers will strive to regain control over the market. In this case, it would be a good idea to consider short positions only after the price forms fresh resistance at 1.2224. Otherwise, the pair could be sold immediately at a bounce from a high at 1.2281 bearing in mind a downward intraday correction of 20-30 pips.

Let me remind you about the COT (Commitment of Traders) report from January 5. The report logs an increase both in short and long positions. Buyers of risky assets still believe in the bullish trend even despite EUR weakness at the beginning of the year. This sentiment invites more large market players to the market. The overall bullish sentiment is fed by the news that Europe is forging ahead with the vaccination campaign. On the other hand, EUR is weighed down by restrictive measures for businesses and the ongoing lockdown in many EU countries.

All in all, long non-commercial positions grew from 222,443 to 224,832 whereas short non-commercial positions rose to a greater extent 81,841 from 78,541. Due to a larger degree of growth in short positions, the overall non-commercial net positions on EUR/USD declined from 143,902 to 142,991 a week earlier.

A minor change in the delta in the early 2021 hardly indicates a shift in a trading sentiment on EUR. To sum up, EUR bulls are still betting on EUR growth after the EU authorities cancel the lockdown.

Signals of technical indicators

Moving averages

The pair is trading at about 30- and 50-period moving averages. It indicates a further decline of EUR in the short term.

Remark. The author is analyzing a period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.

Bollinger Bands

A breakout of the lower border of the indicator at near 1.2140 will entail a new bearish wave. EUR/USD growth will be capped by the upper border of the indicator at about 1.2174.

Definitions of technical indicators

• Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
• Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
• MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
• Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
• Non-commercial traders - speculators such as retail traders, hedge funds and large institutions who use the futures market for speculative purposes and meet certain requirements.
• Non-commercial long positions represent the total long open position of non-commercial traders.
• Non-commercial short positions represent the total short open position of non-commercial traders.
• The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.