To open long positions on EUR/USD, you need:
A small spike in volatility yesterday afternoon did not greatly affect the market, since the pair still returned to the horizontal channel at the end of the day, which has been in this channel for the entire week. If you look at the 5-minute chart, you will see how a breakthrough of the 1.2201 level did not lead to a reverse test from top to bottom, which did not make it possible for us to get a good entry point into long positions. A similar story was a return to the area under this level in the afternoon. If the bulls were able to test it from the bottom up, then there would be a good signal to open short positions. And so, I had to skip this entry point. As a result, there were no deals for yesterday.
Today is a very important day from a fundamental point of view, as the meeting of the European Central Bank on monetary policy will take place. However, none of the analysts expects the central bank to make any changes in interest rates or in the volume of bond purchasing, therefore this meeting is considered to be a passing one. If the euro is under pressure in the first half of the day, and yesterday's news about unsuccessful negotiations between the UK and the EU led to a sharp drop in the pair in the afternoon, then only a false breakout in the support area of 1.2152 can create a signal to open long positions in order to return to resistance at 1.2185... A breakthrough and test of this area from top to bottom can create an entry point into long positions in continuation of the upward trend, counting on the next high of 1.2215. The next target will be the 1.2250 level, where I recommend taking profits. If the bulls are not active in the 1.2152 area, short positions can be safely opened from a large low in the 1.2113 area, or even lower - in the 1.2073 area, counting on an upward correction of 15-20 points within the day. Movement to these levels will be ensured only in case we receive a very strong growth of US inflation, which will be discussed in more detail in the afternoon forecast.
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 1.2185, which was formed at the end of yesterday and which, like yesterday, the bulls are now aiming for. This level also acts as an intermediate upper border of a wider horizontal channel. Forming a false breakout there generates a signal to sell the euro in hopes of pulling it down to the area of the middle border of the horizontal channel at 1.2152. A breakthrough of this level depends on the results of the European Central Bank meeting, therefore, an equally important task for the bears is to settle below the 1.2152 level. Its test from the bottom up creates another signal to sell the euro in order to return to the lower border of the horizontal channel at 1.2113, where I recommend taking profits. The next target will be the low of 1.2073, but we will reach it only in case we receive very strong inflation indicators in the US. If the bears are not active in the area of 1.2185 this morning, then I recommend postponing short positions until the resistance test of 1.2215. Selling the euro immediately on a rebound can be done from a larger high at 1.2250, counting on a downward correction of 15-20 points. The next serious level is at the new local resistance at 1.2283.
The Commitment of Traders (COT) report June 1 shows that long positions increased while short positions decreased, which indicates a growth in demand for the European currency in the last month of the second quarter of this year. The European economy is expected to show a particularly strong recovery in the summer, which will lead to new growth for the euro in the area of annual highs. Lifting a number of quarantine restrictions, which are still in effect in European countries, will lead to an even greater revival of the economy, which will provide momentum through an increase in retail sales and inflation, which, according to the latest report, has seriously increased in the eurozone. The data on activity in the manufacturing and service sectors also continue to delight economists, which again indicates a serious recovery. Any strong downward movement of the EUR/USD pair is now perceived by traders as a good opportunity to gain long positions in continuation of the bull market. The dollar can only hope that in the summer, the Federal Reserve will start to seriously talk about reducing the volume of purchases of bonds, but we will know about this only by mid-June. The COT report showed that long non-commercial positions jumped from 236,103 to 237,360, while short non-commercial positions fell from 132,103 to 128,038. This indicates an influx of new buyers that expect the euro to continue rising, while sellers have a wait-and-see attitude. Considering the fact that the pair significantly recovered last Friday, this may indicate the formation of a new upward trend and the return of EUR/USD to local highs. This is where the bulls will continue to accumulate long positions in hopes of going beyond them. This indicates a possible breakdown of last month's highs in the near future and the continued growth of the euro. The total non-commercial net position rose from 104,000 to 109,322. The weekly closing price also increased from 1.22142 to 1.22326.
Indicator signals:
Moving averages
Trading is carried out in the area of 30 and 50 moving averages, which indicates the sideways nature of the market in front of important fundamental data.
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 1.2150 will lead to a major downward movement for the euro. If the euro grows, the upper border of the indicator in the area of 1.2210 will act as a resistance.
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.
