FX.co ★ EUR/USD trading plan for European session on October 11, 2023. COT report and overview of yesterday's trades. EUR strengthens amid dovish Fed comments

Yesterday, the pair formed several good signals to enter the market. Let's have a look at what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.0551 as a possible entry point. The price declined to this level but failed to test it, missing just a few pips to reach it. Therefore, I could not get a good entry point into long positions. Also, the price could not perform a retest of 1.0583 after a breakout. In the afternoon, a breakout at 1.0560 formed a sell signal, sending the pair down by more than 60 pips. A rebound at 1.0585 had hardly provided any entry signal. So the best scenario at this point was to sell the pair following a failed consolidation near 1.1616. As a result, the pair went through a downward correction of 20 pips.

For long positions on EUR/USD

Dovish comments made by Fed officials, questioning the need to hike rates amid a downbeat situation in the bond market, shattered the US dollar and made it retreat against the euro. Today, markets expect the publication of CPI in Germany. If strong enough, the data may push the euro above yesterday's high. Yet, I doubt that the bulls will have enough strength to settle there. As for today, I plan to act on a decline after a false breakout at the support of 1.0585 that was formed yesterday. This will create a good entry point into long positions with the aim of building an upside correction towards the 1.0616 resistance level. The pair tested this level yesterday, meaning that today bears may give up this level. Breaking and testing this range from above will provide an opportunity for a surge towards 1.0644. The ultimate target is the 1.0671 area where I intend to take profits. If EUR/USD declines and there is no buying activity at 1.0585 in the first half of the day, the pressure on the euro will increase, bringing the pair back into the sideways channel. In this case, only a false breakout near 1.0557 will signal a buying opportunity. I will open long positions immediately on a rebound from 1.0522, aiming for an upward intraday correction of 30-35 pips.

For short positions on EUR/USD

Sellers attempt to change the situation in their favor but with no success. Maintaining a strong presence at the nearest resistance of 1.0616 is the major task for bears right now. If they lose this level, the bearish trend will be canceled. Only a false breakout at this point will generate a sell signal, with a prospect of a decline towards the 1.0585 support, given that Germany's CPI turns out to be weak. Moving averages supporting the buyers are also found at 1.0580. If bears are determined to stop the correction, they need to seize control over this level today. A breakout and consolidation below this range, as well as its upward retest, will give another sell signal with the target at the 1.0557 low. The ultimate target will be the 1.0522 level where I will take profits. If EUR/USD rises during the European session and bears are absent at 1.0616, bulls might get a chance to override the bear market completely. In this scenario, I will delay going short until the price hits the resistance at 1.0644. I may consider selling there but only after a failed consolidation. I will go short immediately on a rebound from the high of 1.0671, aiming for a downward correction of 30-35 pips.

COT report

The Commitments of Traders report for October 3 recorded a minor rise in long positions and a sharp increase in short positions. Apparently, after the central banks' meetings, markets realized that interest rates will be raised further in the fight against inflation. This will definitely drive the US dollar higher which is already reflected on the COT. Notably, these reports have not yet reflected the changes in the recent US jobs data release which twice exceeded the forecast. In addition, the military conflict in the Middle East also undermines risk sentiment, thus spurring demand for safe-haven assets such as the US dollar. The COT report indicates that non-commercial long positions went up by just 267 to stand at 211,783, while non-commercial short positions jumped by 19,723, reaching a total of 132,840. As a result, the spread between long and short positions increased by 1,187. The closing price dropped to 1.0509 from 1.0604, further underscoring the bearish market sentiment.

Indicator signals:

Moving Averages

Trading above the 30- and 50-day moving averages indicates that buyers are trying to continue correction.

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 1.0585 will act as support.

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.