To open long positions on EUR/USD, you need:
Yesterday was a fairly calm day. The absence of important fundamental reports held back the price from rising above the local high in the 1.1878 area, which the bulls will aim for today. The euro was slightly under pressure in the morning due to statements on monetary policy from representatives of the European Central Bank, but the overall sentiment remains positive, so we can continue to count on the strengthening of risky assets this 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 (COT) positions have changed. We could observe a reduction in the overall positive net position in the COT report for July 6, and this was due to the sharp rise in short positions. This balance of power does not take into account the growth that was observed at the end of last week after the ECB raised its inflation target to 2.0% and admitted that it will allow inflation to exceed the target for quite some time in the future. This turned out to be enough for the bulls to start building up long positions. Now the focus will be on the ECB meeting, which will be held on July 22, and at which changes in monetary policy will be announced. Until then, any decline in the European currency will be seen as a good reason to build up long positions. The COT report indicated that long non-commercial positions rose from 209,058 to 212,998, while short non-commercial positions rose from 121,912 to 135,808. No important fundamental reports for the euro area this week, so the focus will shift to US inflation and retail sales. Further direction depends on these indicators. But whatever they are, the key to the growth of the European currency is the economic recovery in the summer, so I recommend betting on the growth of risky assets. The total non-commercial net position declined from 87,146 to 77,190. The weekly closing price dropped from 1.1928 to 1.1862.
The bulls have problems with further growth and in order for them to get out of the horizontal channel, they need a good fundamental background. Considering that the German inflation report will be released in the first half of the day, it is quite possible that a larger increase in this indicator will lead to the same growth for the euro. This will be a continuation of last week's upward trend. A rise in the consumer price index could help the bulls regain control of the resistance at 1.1878. Only a breakthrough and consolidation at this level with a reverse test from top to bottom generates a signal to open long positions in hopes of resuming the upward trend to the area of a new high at 1.1904. Only a breakthrough of this area with a similar consolidation can create another entry point for long positions, which will lead EUR/USD to new local levels of 1.1937 and 1.1974, where I recommend taking profits. In case we receive a disappointing report on Germany and negative news from the meeting of eurozone finance ministers, as well as a decline in the pair during the European session, then it is best not to rush into long positions. You can open longs subject to forming a false breakout in the support area of 1.1853, which was formed at the end of yesterday. I recommend buying EUR/USD immediately on a rebound only after the first test of the low of 1.1826, counting on an upward rebound of 15-20 points within the day. The next big support is seen around 1.1793.
To open short positions on EUR/USD, you need:
The bears will struggle to keep the market under their control as they are one step away from letting it go. To do so, they need to keep the pair below the resistance of 1.1878, which has repeatedly helped them since the beginning of this month. Forming a false breakout there, along with weak data for Germany, can create a signal to sell the euro, in hopes of pulling it down to the middle border of the horizontal channel at 1.1853. A breakthrough of this level and a test from the bottom up can return the pair to the downward trend that formed following the Federal Reserve meeting, which will open the way to the low of 1.1826. Its breakdown will only be a matter of time. However, it is possible to open short positions there only after we receive a very strong US inflation report, which will be released in the afternoon. This option will push EUR/USD even lower to the 1.1793 support, where I recommend taking profit. If the bears are not active in the morning at 1.1878 and we receive strong data for Germany, indicating an increase in the consumer price index even in the summer, then I recommend opening short positions immediately to a rebound from resistance 1.1904, or even higher - from a high of 1.1937, counting on a downward correction of 15-20 points. A test of the 1.1937 level will put an end to all of the bears' attempts to continue the downward trend.
Indicator signals:
Trading is carried out in the area of 30 and 50 moving averages, which indicates uncertainty regarding the succeeding direction.
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 1.1878 area will lead to a new wave of euro growth. A breakthrough of the lower border of the indicator in the area of 1.1840 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.
