16.07.202108:43 Forex Analysis & Reviews: EUR/USD: plan for the European session on July 16. COT reports. The positions of euro bulls were shaken. We need to surpass 1.1822

To open long positions on EUR/USD, you need:

Yesterday, the pressure on the European currency returned in the afternoon and the euro sell signal, which was formed during the European session, worked perfectly. In the first half of the day, I paid attention and focused on the resistance of 1.1838. Let's look at the 5-minute chart and talk about what happened. We see how the bulls tried to break through and settle above the resistance of 1.1838, but the upward trend did not continue. As a result, a false breakout and a signal to sell the euro was formed. But the bears were not active enough, and after a while the bulls tried to rise above the level of 1.1838 but failed, once again forming a signal to open short positions there.

The euro continued to fall after the US labor market report was published, which once again demonstrated recovery after the coronavirus pandemic, and statements by representatives of the Federal Reserve on the need for changes in monetary policy caused the US dollar to strengthen in the afternoon. The reverse test of the 1.1822 level from the bottom up created an excellent entry point for short positions, which caused the euro to fall to the support area of 1.1800, where I advised buying the pair.

Two rather important components for the eurozone will be published in today's European session: first of all, the annual inflation for June of this year will attract attention, which may go beyond 2.0%, and can cause the European currency to strengthen, since such changes will force the European Central Bank to act more strictly. It is also necessary to pay attention to the report on the foreign trade balance of the eurozone, since it can indirectly affect the mood of investors. As for the technical picture, the focus in the first half of the day will be on the level of 1.1822, which was formed yesterday. Only a breakthrough and consolidation in this range, followed by its test from top to bottom, can create a signal to open long positions in hopes that the pair would rise to yesterday's high in the area of 1.1849. The next target will be the resistance of 1.1874, where I recommend taking profits. In case EUR/USD falls during the European session, the bulls need to try very hard to protect the support of 1.1797, on which the fragile upward movement of the euro depends, which we observed in the middle of this week. Forming a false breakout there will help protect the lower border of the short-term ascending channel and create a signal to open long positions in order to restore the euro to the area of 1.1822, where the moving averages that play on the bears' side are. In case the bulls are not active in the area of 1.1797, I advise you to postpone long positions and wait for the update of this week's low in the area of 1.1773 from where you can buy EUR/USD immediately for a rebound, counting on an upward correction of 15-20 points within the day. The next major support is seen in the area of 1.1740.

To open short positions on EUR/USD, you need:

The bears are trying to regain control of the market, and given that quite important fundamental data is coming out in the first half of the day, they may succeed. The whole struggle for today will unfold around the level of 1.1822. Forming a false breakout on it creates a signal to open short positions in hopes of continuing the bearish trend formed after yesterday's US labor market report. An equally important goal will be the support of 1.1797, since its breakdown depends on whether the bulls are still in control of the pair or not. Consolidating below this range and testing it from the bottom up can create a good signal to open additional short positions, counting on the pair falling to a low like 1.1773. A more distant target will be the 1.1740 area, where I recommend taking profits. In case EUR/USD grows during the European session and the bulls are not active at the level of 1.1822, it is best to postpone short positions until the test of a larger resistance of 1.1849 or to the level of 1.1874, where you can immediately sell the pair for a rebound based on a downward correction of 15-20 points.

We could observe a reduction in the overall positive net position in the Commitment of Traders (COT) report for July 6, and this was due to the sharp rise in short positions. This balance of power does not take into account the growth that was observed at the end of last week after the ECB raised its inflation target to 2.0% and admitted that it will allow inflation to exceed the target for quite some time in the future. This turned out to be enough for the bulls to start building up long positions. Now the focus will be on the ECB meeting, which will be held on July 22, and at which changes in monetary policy will be announced. Until then, any decline in the European currency will be seen as a good reason to build up long positions. The COT report indicated that long non-commercial positions rose from 209,058 to 212,998, while short non-commercial positions rose from 121,912 to 135,808. No important fundamental reports for the euro area this week, so the focus will shift to US inflation and retail sales. Further direction depends on these indicators. But whatever they are, the key to the growth of the European currency is the economic recovery in the summer, so I recommend betting on the growth of risky assets. The total non-commercial net position declined from 87,146 to 77,190. The weekly closing price dropped from 1.1928 to 1.1862.

Indicator signals:

Trading is conducted in the area of 30 and 50 moving averages, which indicates some market uncertainty with the short-term direction of the pair.

Moving averages

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 breakthrough of the upper limit of the indicator in the area of 1.1825 will lead to a new wave of euro growth. A break of the lower limit of the indicator in the area of 1.1797 will increase the pressure on the pair.

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.