To open long positions on EUR/USD, you need:
Volatility in the EUR/USD pair was at an extremely low level since it was a holiday yesterday and many exchanges in the UK and the United States are closed. This also did not allow us to wait for signals to form for entering the market due to the fact that the levels I indicated were not tested. The resistance of 1.1220 was surpassed only at the end of the US session, but I did not see a reverse test of this level from top to bottom. In general, the situation remains on the side of the euro bulls, who actively returned to the market at the end of last week.
Before talking about further prospects for the EUR/USD movement, let's see what happened in the futures market and how the Commitment of Traders positions have changed. The Commitment of Traders (COT) report for May 25 revealed that long positions increased while short ones decreased, which indicates a growth in demand for the European currency before the start of the last month of the second quarter of this year. It is expected that the European economy will show particularly strong growth in the summer, which will lead to a new growth for the euro in the area of annual highs. Data on the growth rate of the US economy in the first quarter of 2021 did not particularly surprise traders last week, which caused the dollar to remain under pressure. Any strong movements of the EUR/USD pair are now perceived by traders as a good opportunity to gain long positions in continuation of the bull market. Apparently, only the news that the Federal Reserve is seriously going to reduce the volume of bond purchases can lead to a serious increase in the US dollar, but we will know about this only by mid-June. Up to this point, every time the pair declines, the demand for risky assets will return. The COT report shows that long non-commercial positions jumped from 232,330 to 236,103, while short non-commercial positions fell from 132,472 to 132,103. This indicates an influx of new buyers in hopes of continued growth of the euro, and a wait-and-see attitude on the bears' part. The bulls accumulate long positions given the fact that the pair has been standing at local highs for quite a long time, but the bears are gradually getting rid of the euro. This indicates a possible breakdown of monthly highs in the near future and the continuation of the euro's growth. The total non-commercial net position increased from 99,858 to 104,000. The weekly closing price also increased from 1.21564 to 1.22142.
Amid weak market volatility and low trading volume, euro bulls took advantage of the moment and returned to take control of the 1.2220 level. Euro bears did not even have time to realize how quickly this level was taken away from them. The euro may continue to strengthen today, but in order to do so we should be pleased with good fundamental reports on the indices of manufacturing activity of the eurozone countries, as well as reports on the labor market in Germany and the eurozone. The first half of the day will end with data on inflation in the euro area, where the indicator should show growth, which will only strengthen the position of the bulls. In this case, the bulls will aim for the resistance of 1.2261 during the European session. A breakthrough and a test of this area from top to bottom can create an entry point into long positions in continuation of the upward trend in hopes of updating the next monthly high (1.2313), where I recommend taking profits. The next target will be the level of 1.2347. A more optimal scenario for long positions will be a downward correction of EUR/USD to the support area of 1.2220, where the moving averages play on the side of bulls. Forming a false breakout there will be a good entry point into long positions in order to continue the bull market. In case we receive a disappointing report on the eurozone and the bulls are not active in the area of 1.2220, short positions can be safely opened from a large low in the area of 1.2182, or even lower - in the area of 1.2134, based on an upward correction of 15-20 points within the day. If the bulls do not manage to get out of the resistance of 1.2261 today, trading will continue in the wide horizontal channel of 1.2134-1.2261.
To open short positions on EUR/USD, you need:
The bears will fight to regain control of the market, and for this it is necessary to protect the large resistance at 1.2261, which the bulls are currently aiming for. Forming a false breakout there creates a new signal to sell the euro in hopes of falling to the area of the average limit of the horizontal channel at 1.2220, where the moving averages are located, playing for the bulls. A breakthrough of this level will pull the pair into a downward correction, which will limit the succeeding bull market, at least for a while. An equally important task is to settle below the 1.2220 range. A disappointing report on the activity of the manufacturing sector of the eurozone, which is unlikely, and a weak labor market, which is also likely not to happen amid the economic recovery, as well as a test from the bottom up to the level of 1.2220 - all this will create another signal to sell the euro in order to return to the lower border of the horizontal channel at 1.2134, where I recommend taking profits. The next target will be the 1.2085 low, but such a scenario is unlikely to be possible without serious market shocks. If the bears are not active in the area of 1.2261 in the first half of the day, then I advise you to postpone short positions immediately for a rebound from the large resistance of 1.2313, counting on a downward correction of 15-20 points. The next serious level is at a new local high in the area of 1.2347.
Indicator signals:
Trading is carried out above 30 and 50 moving averages, which indicates that the euro will continue to rise.
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 upper border of the indicator in the area of 1.2255 will lead to a new wave of growth for the euro. Going beyond the lower border of the indicator in the area of 1.2190 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.
