To open long positions on EUR/USD, you need:
Two signals to enter the market were formed yesterday afternoon. Let's take a look at the 5 minute chart and break down the trades. The risk that the EU countries will once again get bogged down in an economic lockdown due to the third wave of coronavirus infection has led to a major downward movement of the euro. A false breakout in the support area of 1.1877 at the beginning of the US session created a signal to buy the euro. The upward movement was around 17 points, afterwards the euro was under pressure again. A breakthrough and reverse test of the 1.1877 level created an excellent entry point for short positions in hopes that the pair would fall even further. We have reached the target value of 1.1835 in today's Asian session, which made it possible for us to take about 40 points from the market.
Today we are waiting for a fairly large fundamental background: reports on activity in the manufacturing and services sectors of the eurozone countries will be released in the first half of the day, and afterwards European Central Bank President Christine Lagarde will speak. Weaker indicators on activity in the services sector will put pressure on the euro, which will maintain the bearish trend in the pair. It is not necessary to expect that activity would significantly recover, as the European economy continues to experience problems due to the coronavirus pandemic. A slow vaccination program will prevent the economy from opening up to its full potential. Buyers must protect an important support level like 1.1835 in the first half of the day, which is their last hope, keeping the pair from a new bearish momentum. Forming a false breakout at this level creates a signal to open long positions in hopes that the euro would recover to the resistance area of 1.1877, where the moving averages pass, playing on the side of the sellers. A breakthrough and being able to settle above 1.1877 will open a direct road to the 1.1930 high, where I recommend taking profits. If bulls are not active in the support area of 1.1835 or we receive weak fundamental reports for the eurozone, then I recommend holding back from long positions for a rebound immediately from a new large low like 1.1793, counting on an upward correction of 20-25 points within the day. Testing this level will completely cancel out all the bulls' plans for the euro's rapid growth. The next major support is seen at 1.1749, from which one can act on a rebound in a similar way.
To open short positions on EUR/USD, you need:
Bears need to think of a way to pull down the pair below support at 1.1835, which has already been tested during the Asian session. A breakthrough and consolidation below this level will result in removing buyers' stop orders and quickly push EUR/USD to the 1.1793 low. Getting the pair to settle below this range will push it to the next major support at 1.1749, where I recommend taking profits. The bearish momentum will directly depend on today's eurozone report, as well as on the yield on 10-year US bonds, the growth of which may increase demand for the US dollar. If EUR/USD grows in the first half of the day, then it is best to wait for a false breakout to form at the 1.1877 level, and only then should you open short positions. Moving averages, playing on the side of sellers, also pass there. If the bears are not that active near resistance at 1.1877, and the bulls achieve a breakthrough and rise above this area, then it is best to open short positions immediately on a rebound from the next large resistance at 1.1930, counting on a downward correction of 20-25 points within the day. The next major high is clearly visible in the 1.1987 area.
The Commitment of Traders (COT) report for March 15 clearly shows how the sharp reduction of long positions is taking place, however, the growth of those who want to sell the euro is gradually slowing down. Despite this, the market remains on the side of the sellers of risky assets, which may lead to forming a downward trend. This is confirmed by the graph of the euro's decline, which we have been observing since the end of February this year. The sharp rise in US 10-year bond yields favors the dollar as investors expect America to be the first to start raising interest rates, making the greenback more attractive. The recent Fed meeting has once again convinced investors that the US economy is recovering much faster than expected, increasing the risk of an earlier inflationary jump. At the moment, it is best not to rush into euro purchases, but to wait for lower prices. Another factor in the medium-term pressure on the euro is the rise in the incidence of coronavirus in the eurozone countries and the weak vaccination program. The problems with the Astrazeneca vaccine do not add confidence to investors, who are betting on a stronger summer growth rate for the EU economy. One can expect an improvement in the economic outlook for the eurozone only when restrictions are lifted and the service sector is restored, which will return the medium-term trend of strengthening EUR/USD. The COT report indicated that long non-commercial positions fell from 207,588 to 195,857, while short non-commercial positions only rose from 105,624 to 105,881. As a result, the total non-commercial net position fell from 101,964 to 89,976 for the fifth consecutive week. The weekly closing price was 1.1926 against 1.1812 a week earlier.
Indicator signals:
Moving averages
Trading is carried out below 30 and 50 moving averages, which indicates that the euro will continue to fall in the short term.
Note: The period and prices of moving averages are considered by the author on the H1 hourly chart and differs from the general definition of the classic daily moving averages on the daily D1 chart.
Bollinger Bands
A breakout of the lower border of the indicator in the area of 1.1835 will lead to a larger downward movement for the euro. Growth will be limited by the upper level of the indicator in the area of 1.1895.
Description of indicators
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
- Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
- MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
- Bollinger Bands (Bollinger Bands). Period 20
- Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
- Long non-commercial positions represent the total long open position of non-commercial traders.
- Short non-commercial positions represent the total short open position of non-commercial traders.
- Total non-commercial net position is the difference between short and long positions of non-commercial traders.
