In the morning article, I turned your attention to the level of 0.9646 and recommended making decisions with this level in focus. Now, let's look at the 5-minute chart and try to figure out what actually happened. A decline in the euro to 0.9646 in the first half of the day triggered a false breakout and a buy signal. As a result, the pair' rose by 60 pips. After reaching 0.9695, bears tried to take control of this level, which led to a sell signal. At the time of writing, there was no strong downward movement. In the afternoon, the technical outlook changed slightly.
Conditions for opening long positions on EUR/USD:
As long as trading is carried out below 0.9700, the euro keeps dropping. However, its further trajectory in the afternoon will largely depend on the speeches of James Bullard, Loretta Mester, and Mary Daly, as well as on US GDP data for the second quarter. If the reading is revised downward, the US dollar may lose ground. Naturally, the euro will take advantage of it. The weekly US Initial Jobless Claims report is unlikely to have a big impact on the pair. Besides, analysts do not expect significant changes. If the pair drops, the optimal scenario for long positions will be a false breakout of the support level of 0.9646, formed in the first half of the day. At this level, the moving averages are passing in positive territory. It may give a good buy signal with the prospect of a rise to 0.9700. If risk appetite returns to the market, the pair may consolidate above this level and a downward test. So, bears will definitely lose the upper hand. There could be a new buy signal. The quotes are likely to recover to a weekly high of 0.9753. A more distant target will be the 0.9807 level where I recommend locking in profits. If EUR/USD drops after the hawkish statements of Fed policymakers and the breakout of 0.9646, the pair will quickly decrease to the next support level of 0.9596. At this level, it is better to buy the euro only after a false breakout takes place. You can open long positions on EUR/USD immediately at a bounce from a yearly low of 0.9540 or 0.9490, keeping in mind an upward intraday correction of 30-35 pips.
Conditions for opening short positions on EUR/USD:
Sellers have tried to take the upper hand but failed. The pair did not drop sharply after a false breakout of 0.9700, indicating further short-term growth of the euro. For this reason, the main task of bears today is to protect the resistance level of 0.9700. If US economic reports turn out to be strong, pressure on the euro will escalate. Another false breakout of 0.9700 will give a sell signal with a prospect of a decline to 0.9646. At this level, the moving averages have a big impact on the trajectory of the pair. The euro may lose ground after a breakout below 0.9646, Fed policymakers' hawkish remarks, and an upward test. It will give an additional sell signal. Bulls will have to close Stop Loss orders. The piece is likely to drift lower to a low of 0.9596. A more distant target will be the support level of 0.9540 where I recommend locking in profits. If EUR/USD grows during the US session and bears show no energy at 0.9700, which is more likely, the euro may start an upward correction to the weekly high of 0.9753. It is recommended to sell the euro only after a false breakout takes place. You can open short positions at a bounce from a high of 0.9807 or 0.9853, keeping in mind a downward intraday correction of 30-35 pips.
The COT report for September 20 logged a drop in both long and short positions. The data reflects the ECB's meeting in September and a sharp rise in the key interest rate of 0.75%. However, the Fed's meeting took place a bit later and failed to affect the report. Notably, the Federal Reserve also raised the benchmark rate by 75 basis points and maintained the gap between the interest rates of the central banks. As a result, pressure on the euro increased. In general, the current economic situation in the eurozone is affecting the euro, which has already dropped to 0.95 and has no reason to recover. A worsening geopolitical situation in the world has a significant influence on the eurozone. It may greatly slacken the European economy in autumn and winter. Against the backdrop, the economy may slip into recession as early as spring of 2023. That is why in the mid-term, the euro will hardly gain in value. Even though the US publishes weak fundamental data, investors will still prefer safe-haven assets, including the greenback. The COT report unveiled that the number of long non-commercial positions dropped by 1,214 to 206,564, whereas the number of short non-commercial positions slumped by 46,500 to 173,115. At the end of the week, the total non-commercial net position became positive and increased from -11,832 to 33,449. This indicates that investors have benefited from the situation and continued to buy the cheap euro, thus accumulating long positions. They hope that the crisis will end soon. The weekly closing price rose to 1.0035 from 0.9980.
Signals of technical indicators
EUR/USD is trading above 30- and 50-period moving averages, indicating an upward correction.
Remark. The author is analyzing the 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.
If EUR/USD drifts higher, the indicator's upper border at 0.9753 will act as resistance.
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.