To open long positions on EUR/USD, you need:
Trading in the afternoon was much more interesting than in the morning. Let's take a look at the 5 minute chart and talk about what happened. Back in the European session, bulls tried to surpass resistance at 1.2149 for the second time, however, the expected reverse test from top to bottom did not happen. So I was forced to miss the entry point. I marked the scenario in which it was possible to enter long positions on the chart. The growth was driven by a record rise in the ZEW Business Sentiment Index for the euro area. The indicator jumped to a record 84 points, seriously surpassing economists' forecasts. We reached the resistance of 1.2177 during the US session, where a false breakout was formed and, accordingly, a signal to open short positions. Immediately after that, the euro moved down by 30 points. The pair spent the rest of the day in the horizontal channel.
Today the day is oversaturated with various fundamental reports, to which traders will react in different ways. In the first half of the day, we have the German inflation report, industrial production and forecasts from the European Commission may return the demand for the euro. For this, the bulls need to protect support at 1.2119, which the pair has come close to. Forming a false breakout there will be a signal to open long positions in continuation of the upward trend that was formed at the end of last week. The nearest target will be resistance at 1.2149, around which there was a lot of activity yesterday. Only a breakthrough and consolidation above this range with a reverse test from top to bottom creates a signal to open new long positions in hopes of continuing the upward trend in the area of a high like 1.2177, where I recommend taking profits. The next target will be the level of 1.2235, but one can hardly bet on such an active growth without good macroeconomic reports for the eurozone. If the bulls are not active in the area of 1.2119 in the first half of the day, then traders are likely to take profits before the US inflation report is published. Therefore, we can expect EUR/USD to sharply fall. In this case, I recommend opening long positions only for a rebound from a low like 1.2060, counting on an upward correction of 20-25 points within the day.
To open short positions on EUR/USD, you need:
The bears will struggle to continue the downward correction, and they need to take control of the large support level of 1.2119 for this. Only a breakthrough and a test of this level from the bottom up creates a signal to sell the euro in order to continue the downward trend to the area of a low like 1.2060, where I recommend taking profits. It is possible to count on such a scenario in case traders negatively react to the data on the eurozone. If the numbers do not significantly deviate from economists' forecasts, then most likely all attention will shift to the data on the consumer price index in the US, which is released in the afternoon. A test of the 1.2060 level would seriously jeopardize the bullish trend seen at the end of last week. Surpassing the 1.2060 range will surely bring the euro down to the 1.2025 area. If we see an upward correction of the pair in the first half of the day, then it is best not to rush to sell: forming a false breakout in the resistance area of 1.2149, along with weak data on inflation in Germany and Italy, creates a new signal to sell the euro for the purpose of pulling it down... If bears are not active at this level, then I recommend refraining from short positions immediately to rebound from a large resistance at 1.2177, counting on a downward correction of 15-20 points within the day.
The Commitment of Traders (COT) report for May 4 showed that both short and long positions have increased, but now there were more buyers, which led to an increase in the overall non-commercial position. Last week, everyone was waiting for the US labor market report and hoped that risky assets would continue to grow, which is what happened. Therefore, the growth in long positions outweighed short ones. The disappointing report further proves that the Federal Reserve will continue to stay on track even with a sharp economic jump. This strategy will keep the pressure on the US dollar and will allow further build-up of long positions in risky assets, which will push EUR/USD upwards. The COT report indicated that long non-commercial positions jumped from 200,415 to 206,472, while short non-commercial positions rose from 119,448 to 121,643. This indicates an influx of new buyers with the expectation that the euro will continue to grow, however with each renewal of the high, there are more and more people willing to sell. The more the euro will show growth this month, the stronger the influx of new sellers will be, as changes in the Fed's monetary policy have not been canceled this year. The total non-commercial net position increased from 80,967 to 84,829. The weekly closing price, on the contrary, declined from 1.20795 to 1.20591.
Indicator signals:
Trading is carried out just below the 30 and 50 moving averages, which indicates the formation of a horizontal channel ahead of important data.
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
Surpassing the lower border of the indicator in the area of 1.2120 will increase the pressure on the pair. Surpassing the upper border of the indicator in the area of 1.2177 will lead to a new wave of growth for the euro.
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.
