What is needed to open long positions on EUR/USD

Yesterday, the currency pair suggested a lot of signals for market entries. Let's look at the 5-minute chart and try to figure out what actually happened. In my afternoon article, I described you the level of 1.1413 and recommended making trading decisions with this level in focus. A decline and a breakout of this level did not allow the euro buyers to get hold of this level in the first half of the day. At the same time, the sellers also did not assert themselves. In the second half of the day, the bulls protected 1.1419 and created a false breakout there. A buy signal did not bring the expected result. Later on, the currency pair again slipped below that level and traders had to fix losses. The euro sellers were lucky during the American session yesterday. After every successful defense of 1.1419, the price dipped 10-15 pips.

Today the economic calendar lacks any fundamental statistics that could make a serious impact on EUR/USD. Thus, the buyers have a fair chance to insist on a further uptrend. However, the US inflation data is on investors' radars tomorrow. The CPI for January is capable of turning the market upside down. Today the market is set to trade quietly. EUR/USD is following the clear-cut bullish trend. Hence, the major task of the buyers is to defend the nearest support of 1.1403. Upbeat data on Germany's trade balance and Italy's industrial production created an excellent market entry point with long positions, betting on a further uptrend. Besides, a false breakout took place at 1.1403.

The second equally important task is to control the middle of the channel at 1.1444. A breakout of this area and consolidation above it will create an extra buy signal. The price will be able to recover to the high of the month at 1.1481. The bulls will hardly be pleased about this achievement. So, a breakout of this level will open the door to the targets of 1.1514 and 1.1562 where I recommend profit taking. If the currency pair declines in the European session and trades sluggishly at about 1.14003, it would be better to cancel buying until 1.1363. However, I would recommend opening long positions there on condition of a fake breakout. Traders can buy EUR/USD immediately at a drop from 1.1336, bearing in mind an upward intraday correction of 20-25 pips.

What is needed to open short positions on EUR/USD

The sellers are trying to interfere, but any price drop is stemmed by acting buying. Traders are bullish about EUR/USD for the medium term in light of the ECB policy meeting last week. Today the sellers will hardly succeed because of the nearest resistance. To keep the pair at least in the sideways channel, they should try to get hold of the price at 1.1444. A fake breakout would be a signal to open short positions with the downward target at 1.14003. The opposite test of this level upwards will generate an extra signal to open short positions with a view to falling to large lows of 1.1363 and 1.1336. 1.1307 is seen as a more distant target where I recommend profit taking. I reckon, the market will hardly change that much until the US inflation data to be released tomorrow. It would be better not to rush to sell the pair, if EUR extends growth and the bears lack energy at 1.1444. The reasonable scenario would be opening short positions on condition of a false breakout at about 1.1481. We could sell EUR/USD immediately at a bounce off 1.1514 or higher at 1.1562, bearing in mind a 15-20 pips downward correction.

The COT report from February 1 logs an increase both in long and short positions, though the short ones grew to a bit larger degree. This enabled a modest contraction of the positive delta. However, we should understand that the data does not take into account the ECB policy meeting where President Christine Lagarde sent a clear message across financial markets. The regulator is determined to take aggressive action if high inflation persists. Meanwhile, the recent EU CPI data confirmed that inflation settled at historic highs for long. So, inflationary pressure will hardly ease in the foreseeable future. This is a strong bullish signal for EUR, suggesting buying for the time being. Fundamentally, traders are now aware that the ECB has revised its policy towards monetary tightening with a possible rate hike this year.

On the other hand, we should not forget that the Federal Reserve is poised to raise interest rates in March 2022. This could dampen the zeal of the euro buyers. Some traders expect aggressive monetary tightening from the US central bank so that it could raise the funds rate by 0.5% at a time, but not by 0.25%. If so, this aggressive move will be bullish for USD.

The COT report reads that long non-commercial positions edged up from 213,408 to 213,563 whereas short non-commercial positions rose from 181,848 to 183,847. It means that traders are still increasing long positions. So, the future report will show a serious advantage of the buyers because it will allow for the policy update of the ECB meeting in February. Last trading week, the overall non-commercial net positions declined a bit to 29,716 against 31,569 a week ago. EUR/USD closed lower last week at 1.1229 against 1.1323 a week ago.

Indicator signals:

Trading is carried out at about the 30 and 50 daily moving averages. It indicates uncertain market sentiment about EUR/USD and its unclear trajectory.

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

If the indicator's lower border at 1.1403 is broken, the price will develop a deeper decline.

Description of indicators

• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked yellow on the chart.
• Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked 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.