16.02.202207:28 Forex Analysis & Reviews: EUR/USD: trading plan for European session on February 16. COT report and overview of yesterday's trading. EUR likely to approach 1.1366

What is needed to open long positions on EUR/USD:

Yesterday, EUR/USD provided many entry points. Let's look at the 5-minute chart and try to figure out what actually happened. In the morning article, I highlighted the level of 1.1340 and recommended taking decisions with this level in focus. Demand for the US dollar dropped sharply yesterday following the Fed meeting. The regulator did not hike the key rate as many traders had anticipated. Of course, the euro took advantage of the US dollar's weakness. Besides, upbeat macroeconomic reports from Germany only facilitated its growth. As a result, the pair returned to the 1.1340 level. There was a sell signal on the chart after the formation of a false breakout at this level. However, the pair escaped a bigger decline. After some time, entry points into long positions appeared amid a breakout and an upward test of this level. The pair gained 25 pips. Shortly after, the pair faced bearish pressure. The US dollar asserted strength following an upbeat report on the US Producer Price Index. However, it also provided an entry point into long positions on EUR/USD. As a result, there was a false breakout at 1.1325 and the pair grew by 40 pips, approaching the resistance area of 1.1366.

Euro bulls are now in control today amid easing geopolitical tensions. Apparently, there will be no military conflict in Ukraine. Risk appetite is creeping back to the market. The eurozone is going to unveil several reports today. The most important one is industrial production. Traders are sure to take notice of its results. At the same time, bulls need to protect the nearest support level of 1.1325 where moving averages are passing, benefiting the bulls. There will be a new entry point into long positions provided that industrial production data is strong and a false breakout at this level has been formed. If so, it may also the upward correction is likely to continue. If bulls defend this range, traders will be able to determine the lower boundary of the new upward channel. However, to cement the upward movement, the euro/dollar pair needs to break above the resistance level of 1.1366. Yesterday, it failed to hit this level. If bulls push the price above the indicated level, it needs to consolidate there. A breakout of this range and a downward test will push the price higher. It will give another entry point into long positions. The pair may also reach 1.1406. After hitting this level, bulls will become quite strong. As a result, the price may touch the highs of 1.1452 and 1.149 where I recommend profit-taking. However, such a sharp rise may occur only after the publication of US retail sales data and the Fed's meeting minutes. If the pair declines during the European session and there is no activity at 1.1325, it is better not to rush to open long positions until 1.1283. It is recommended to open long positions immediately for a rebound from the 1.1235 level or even a lower low around 1.1200, bearing in mind an upward daily correction of 20-25 pips.

What is needed to open short positions on EUR/USD:

At the same time, bears are patient. They are waiting for the release of economic reports. To regain control, they need to defend the level of 1.1366, the target level for the bulls. The formation of a false breakout at this level will be a signal to open short positions. If so, bears are likely to pu7sh the price to the support level of 1.1325 A breakout of this level and a downward test will give an additional entry point into short positions. The pair is excepted to decline to the lows of 1.1283 and 1.1235. A more distant target level will be 1.1200 where I recommend profit-taking. However, the pair may experience such a drastic drop only if industrial production data turns out to be weak. The escalation of the conflict between Russia and Ukraine will also be bearish for the pair. all these factors will undermine demand for risky assets. If the euro rises during the European session and there is no activity at 1.1366, it would be better to refrain from opening short positions. I would advise traders to wait until the formation of a false breakout at 1.1406. It is recommended to sell EUR/USD immediately on a rebound from 1.1452 or even a higher high around 1.1491, bearing in mind an intraday downward correction of 15-20 pips.

COT report

The COT (Commitment of Traders) report from February 8 revealed an increase in long positions and a drop in short ones. This COT report takes into account the results of the ECB meeting when Christine Lagarde announced that the regulator would resort to a more hashish stance if inflation remains high. Last week, ECB policymakers took a wait-and-see approach, triggering a downward reversal. As a result, the EUR/USD pair dropped. Demand for risky assets also weakened due to the risk of a military conflict between Russia and Ukraine. However, the main reason for the downward movement of the EUR/USD pair is the Fed's monetary policy decision. On February 14, the regulator held a closed meeting. However, after the meeting, the Fed did not announce the results. Of course, market participants got even more concerned about inflation. Some economists assume that the central bank may resort to a more aggressive stance and raise the key rate immediately by 0.5% in March this year, rather than by 0.25% as previously planned. The COT report unveiled that the number of long non-commercial positions rose to 218,973from 213,563, while the number of short non-commercial positions declined to 180,131 from 183,847. It indicates that traders continue to open new long positions after a drop in the euro. At the end of the week, the total non-commercial net position increased slightly and amounted to 38,842 against 29,716. The weekly closing price totaled 1.1441 against 1.1229 a week earlier.

Signals of technical indicators

Moving averages

EUR/USD is trading above 30- and 50-period moving averages. It means that the bulls don't give up attempts to carry on with an upward movement.

Remark. The author is analyzing a 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.

Bollinger Bands

A breakout of the upper border at about 1.1366 will trigger a new bullish wave of EUR. Alternatively, a breakout of the lower border at about 1.1335 will escalate pressure on EUR/USD.

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.