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To open long positions on EUR/USD, you need:
Yesterday, several signals were generated for entering the market. Let's discuss them. On the M5 chart, I marked the entry point for short positions that was formed in the morning session. We can see how bears are struggling to break through the level of 1.2099 and settle below it. A sell signal was formed within the downtrend during an unsuccessful attempt to return to this range. The first downward movement brought about 30 pips. Then the bulls again tried to break through the level of 1.2099, right at the time when weak data on the US manufacturing sector was released. However, this was an unsuccessful attempt that resulted in a deep drop in the euro to the target level of 1.2060. In my morning forecast, I recommended buying the euro immediately on a rebound. This is exactly what happened.
Before we talk about further direction of the EUR/USD pair, let's see what happened in the futures market and how the Commitment of Traders positions have changed. The vaccine rollout is still slow in the EU. However, judging by the chart below, even a slight fall in the euro will be an immediate signal for buyers to add more long positions. This happened in the reporting week. The COT report (Commitment of Traders) for January 26 recorded a sharp increase in long positions and a reduction in short ones. The incoming economic data is limiting the upward potential of the euro. Besides, the vaccination process in the eurozone will take longer than expected. This will certainly affect the GDP for the 1st quarter of this year. Still, medium-term prospects for EUR/USD remain positive. Every significant downward correction of the pair brings back the demand for the euro, and a lower rate makes the pair more attractive to investors. The possibility of lifting quarantine restrictions will keep the market positive in the future. At the same time, the risk of extending lockdown measures in February still weighs on the euro. The COT report indicated that long positions of non-commercial traders rose from 236,533 to 238,099, while short positions fell from 73,067 to 72,755. Due to continued growth in long positions, the non-commercial net positions rose to 165,344 from 163,466 a week earlier.
The technical picture remained largely unchanged after yesterday's volatile trading. Today, traders will be focused on GDP data in the euro area for the 4th quarter of 2020. This could set further direction of the pair. The bulls will have a good opportunity to take the lead. The target is seen at the level of 1.2099. A return and consolidation of the price above this range, together with excellent GDP data and a test of 1.2099 from top to bottom, will form a buy signal. EUR/USD is expected to rebound to the resistance of 1.2136 where I recommend taking profit. The next upward target is found at the high of 1.2175. In case the euro depreciates in the morning session, a false breakout to the support area of 1.2060 will help form a good entry point. Otherwise, I advise you to wait with long positions until the price tests the low of 1.2026. From this level, you can open long positions immediately on a rebound, keeping in mind an upward correction of 20-25 pips within the day.
To open short positions on EUR/USD, you need:
Yesterday, the euro bears proved their presence in the market and kept strong at the level of 1.2099, not letting the bulls break through it. As long as the pair is trading below this range, it is likely to continue the downtrend. A false breakout in the first half of the day will serve as an additional signal to open short positions with the low of 1.2060 as a main target. A breakthrough of this level will push the EUR/USD pair to the support area of 1.2026 where I recommend taking profit. The next upward target is seen at the low of 1.1986. A better-than-expected report on GDP in the eurozone will ease the pressure on the euro. In this case, EUR/USD is expected to move back to the resistance area of 1.2099 where moving averages are also found. Currently, the MAs support the euro sellers. If the bearish trend is weak there, it is better to wait with opening short positions on a rebound until the price retests the resistance of 1.2136, keeping in mind a downward correction of 15-20 pips within the day.
Indicator signals:
Moving averages
The pair is trading below the 30-day and 50-day moving averages which indicates persistent bearish pressure on the euro.
Note: The period and prices of the moving averages are observed on the H1 chart. The reading differs from the general definition of classic daily moving averages on the D1 chart.
Bollinger Bands
A breakout of the upper boundary of the indicator to the 1.2099 area will lead to a new round of upward movement on the euro. A breakout of the lower boundary of the indicator around 1.2060 will increase the pressure on the pair.
Description of indicators
• Moving average determines the current trend by smoothing volatility and noise (Period 50. It is marked in yellow on the chart).
• Moving average determines the current trend by smoothing volatility and noise. (Period 30. It is marked in green on the chart).
• MACD Indicator (Moving Average Convergence/Divergence). Quick EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20
• Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
• Non-commercial long positions represent the total number of long open positions of non-commercial traders.
• Non-commercial short positions represent the total number of short open positions of non-commercial traders.
• Total non-commercial net position is the difference between short and long positions of non-commercial traders.
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