To open long positions on EUR/USD, you need:
Several good entry points into the market were formed yesterday. Let's look at the 5-minute chart and figure out what happened. The first half of the day was not entirely successful. In my morning forecast, I paid attention to the 1.1292 level and recommended making decisions on entering the market from it. The lack of statistics on the eurozone led to the movement of the European currency under the level of 1.1292. Several attempts at a false breakout created a signal to buy the euro, but as we can see, we had to fix losses. There was no particular desire among traders to open long positions on risky assets before the results of the Federal Reserve meeting. In the afternoon, an unsuccessful attempt to get above the 1.1296 level resulted in forming a sell signal for the euro, which resulted in a downward movement of 20 points. And only after the Fed meeting, when the bulls once again failed to get above 1.1296, had another sell signal formed. As a result, the pair fell by about 60 points.
Traders did not hear anything new following the results of the Fed meeting. The central bank intends to start raising interest rates in March, and it will do this gradually, but depending on the situation in the economy. As for the reduction of the Fed's balance sheet, as soon as the rates are raised, no specific dates were indicated. In general, nothing new, but it didn't provide much help to the euro. Today we have quite important fundamental statistics on the American economy coming out, but all this in the afternoon. There is no important data during European trading, so bulls will have a chance to correct.
The primary task is to protect the 1.1208 support, to which the pair is gradually declining at the time of writing. Forming a false breakout at this level will result in creating a signal to buy the euro, but be careful with trading against the bear market. As long as the low is not found, corrections even after updating the next lows will be insignificant. An equally important task is to regain control of the new resistance at 1.1236. A breakthrough and a reverse test from top to bottom of this range will lead to another buy signal and open the possibility of recovery to the area: 1.1265, where the moving averages are playing on the bears' side. A more distant target will be the 1.1296 level, where I recommend taking profits.
With a further decline in the pair during the European session and the absence of bullish activity at 1.1208, the pressure on the euro may seriously increase. In this case, it is best to postpone long positions to a low of 1.1180. However, I advise you to open long positions there when forming a false breakout. Buy the euro immediately for a rebound from the 1.1155 level, counting on an upward correction of 20-25 points within the day. A lot will depend on the release of data on the US economy, so the focus is likely to shift to the afternoon.
To open short positions on EUR/USD, you need:
Bears continue to control the market, and after yesterday's Fed meeting, the pressure on risky assets has only increased. The fact that the bears have achieved the renewal of the next local low indicates the continuation of the downward trend in the short term. An important task for the first half of the day is to protect the resistance of 1.1236. Given that it will be difficult for bulls to offer something without fundamental statistics, we can expect the bear market to continue and bet on a further fall in the euro. Forming a false breakout at the level of 1.1236 will return pressure on the pair and create the first entry point into short positions with the goal of pushing EUR/USD to the area of 1.1208.
A breakthrough and a bottom-up test of this range will provide another signal to open short positions with the prospect of falling to large lows: 1.1180 and 1.1155. A more distant target will be the 1.1118 area, but it will be available only in case of very strong data on the growth rate of the US economy in the fourth quarter of this year. I recommend taking profits there.
In case the euro grows and the bears are not active 1.1236, it is best not to rush with short positions. The optimal scenario will be short positions when forming a false breakout in the area of 1.1265, where the moving averages are. You can sell EUR/USD immediately for a rebound from 1.1296, or even higher - around 1.1323, counting on a downward correction of 15-20 points.
I recommend for review:
The Commitment of Traders (COT) report for January 18 revealed that long positions had increased while short ones decreased, leading to an increase in the positive delta. Generally speaking, the euro is still in demand despite the expected changes in the monetary policy of the Federal Reserve. The deeper the correction, the higher the demand. The Federal Reserve will announce its policy decision today. Some traders expect the central bank to raise the interest rate already in January. A shrink in the regulator's balance sheet will also be announced. A lot now depends on Chairman Powell's rhetoric. If he expresses concerns about US inflation, demand for the US dollar will most likely only increase. As many as 4 rate hikes are expected this year. Some major market players suggest there will be even 5 of them. The ECB is planning to end its PEPP already in March. At the same time, the regulator is not ready to take further actions aimed at tightening its policy, which limits the upward potential of risky assets. The COT report revealed an increase in long non-commercial positions to 211,901 from 204,361 and a fall in short non-commercial positions to 187,317 versus 198,356. Traders continue to increase long positions on EUR/USD, hoping for an uptrend. The positive non-commercial net position rose to 24,584 from 6,005. The weekly closing price grew to 1.1410 versus 1.1330 a week earlier.
Trading is below the 30 and 50 daily moving averages, which indicates the continuation of the downward trend.
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.
Crossing the lower border of the indicator in the area of 1.1208 will lead to a fall in the euro. In case of growth, the upper border of the indicator in the area of 1.1300 will act as resistance.
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.