Hourly chart of the EUR/USD pair
The EUR/USD pair started a sharp downward movement last Thursday, which led to the fact that the quotes consolidated below the upward trend line, which supported the bullish traders all this time and made it possible for buyers to earn more than a dozen points. However, at the moment we can conclude that the upward trend is over. Hence, novice traders should now consider trading bearish. Since the euro fell by 90 points on the final day of 2020 and did not even have time to start a round of upward correction, on Monday we recommend waiting for a round of upward correction and only when it has ended should you consider the possibility of opening new short positions. It was very problematic to open new long positions at the end of last year, since the price never came close to the trend line to rebound off it, and the MACD indicator never discharged to zero to create a new strong buy signal. Thus, beginners could try to work out a new upward trend, but there were no strong signals that we recommend tracking.
Last Thursday, December 31, oddly enough, a couple of reports were published in America. However, we could only pay attention to applications for unemployment benefits. The number of primaries was 787,000, which is below forecasts and, therefore, good for the dollar. The number of secondary ones fell to 5.219 million, which is also below forecasts. Thus, we can conclude that unemployment in America continues to fall, which is good for the dollar. However, we cannot conclude that the dollar's growth from last Thursday is somehow connected with this report.
The US and the European Union will publish manufacturing PMIs on Monday, January 4. However, they are unlikely to cause at least some market reaction. The only thing is that we will be able to understand whether the contraction of business activity in the EU or in the United States has begun at the end of December. Although both indices are forecast to be well above 50, no contraction is expected. No more important topics now either. In America, everyone is preparing for a change of president, but again we cannot conclude that this upcoming event is somehow connected with the dollar's decline in recent months and even during most of 2020.
Possible scenarios on January 4:
1) Long positions have lost their relevance at the moment, as quotes have consolidated below the trend line. Thus, in order to be able to re-consider buying the pair, it is necessary to wait for a new upward trend or an eloquent cancellation of the downward trend that exists at the given time.
2) Trading for a fall looks more practical right now, but since the price has already passed 90 points on December 31, we need to wait for an upward rollback and the MACD indicator to discharge to zero. Only after that will it be possible to consider the possibility of opening new sell positions while aiming for support levels 1.2219 and 1.2189.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
The material has been provided by InstaForex Company - www.instaforex.com