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EUR/USD: plan for the European session on July 1. COT reports. Euro quickly bought back from annual lows

Relevance up to 01:00 2022-07-02 UTC–4

Several market entry signals were formed yesterday. Let’s take a look at the 5-minute chart and see what happened. I paid attention to 1.0434 in my morning forecast and advised you to make decisions on entering the market from it. Bulls on the euro did everything to protect 1.0434 and even managed to do so. A false breakout at the beginning of the European session resulted in creating an excellent signal to buy the euro. As a result, the pair rose by more than 30 points. However, after some time the bears returned pressure on the euro and managed to break below 1.0434. The breakthrough took place without a reverse test of this level from the bottom up, so I failed to enter short positions. In the afternoon, the euro’s decline and forming a false breakout at 1.0383, I advised making decisions on entering the market from this level, which had resulted in creating an excellent entry point for long positions. As a result, the pair rose by more than 100 points.

When to go long on EUR/USD:

The scenario in which good statistics on the US will help the euro to strengthen its positions in the afternoon, fully realized itself yesterday. Today is an equally interesting day, as we will get a clear picture of what is happening now with inflation in the euro area, which could lead to a significant strengthening of the euro. The eurozone consumer price index needs to beat economists’ forecasts, which will strengthen the likelihood of a more aggressive policy by the European Central Bank. Reports on business activity indices in the manufacturing sector of the eurozone countries and the eurozone as a whole will also be released today. You should pay special attention to the index of business activity in the manufacturing sector in Germany. Only its value can somehow negatively affect the euro.

The optimal scenario for opening long positions today would be a false breakout forming in the area of the nearest support at 1.0434. This creates a signal to enter the market, counting on an attempt to build at least some upward correction by the end of this week with the prospect of updating 1.0481, which we failed to get above yesterday. There are moving averages, which will limit the pair’s upward potential. Only a breakthrough and test of 1.0481 would hit bearish stops, opening up 1.0525. We can talk about a bearish market turning point only after a breakthrough of 1.0525, which will lead to an update of 1.0568 and 1.0604, where I recommend taking profits.

If the EUR/USD falls and there are no bulls at 1.0434, and for this we should hear that inflation in the eurozone should slow down sharply, things will become very bad for the bulls. In this case, I advise you not to rush to enter the market: the best option for opening long positions would be a false breakout in the support area of 1.0383. I advise you to buy EUR/USD immediately on a rebound only from a new annual low in the area of 1.0321, or even lower – in the area of 1.0255 with the goal of an upward correction of 30-35 points within the day.

When to go short on EUR/USD:

The bears are still coping with all the tasks set, but today it is necessary to act more aggressively again. Weak statistics on the eurozone and Germany may put pressure on the pair, which will lead to its re-exit beyond the support of 1.0434, which is necessary for bears to maintain this week’s downward trend. The best option would be for the euro to rise further in the morning if we receive strong data and form a false breakout at 1.0481. This creates a signal to open short positions with the prospect of a return to 1.0434. A breakthrough and consolidation below this range, as well as a reverse test from the bottom up – all this will lead to another sell signal with the removal of bulls’ stops and a larger movement of the pair down to the 1.0383 area. A breakthrough and reverse test of 1.0383 from below will be evidence of a continuation of the bearish trend with the prospect of a quick decline to 1.0321, where I recommend completely exiting shorts. A more distant target will be the area of 1.0255.

If EUR/USD moves up during the European session, as well as the absence of bears at 1.0481, bulls will regain control of the market again. In this scenario, I advise you to postpone short positions to a more attractive level of 1.0525. Forming a false breakout there will be a new starting point for a downward correction of the pair. You can sell EUR/USD immediately on a rebound from the high of 1.0568, or even higher – in the area of 1.0604 with the goal of a downward correction of 30-35 points.

COT report:

According to the COT report from June 21, the number of both long and short positions slumped, pointing to the bearish sentiment. In his recent speech, Federal Reserve Chairman Jerome Powell confirmed the central bank’s intention to raise the benchmark rate even more to combat the highest inflation in the last 40 years. The European Central Bank is also planning to start hiking the key interest rate as early as next month. This is likely to cap the greenback’s upward potential against the euro. Since risk assets are significantly oversold, the euro may start recovering just after the beginning of monetary policy tightening. The COT report unveiled that the number of long-commercial positions dropped by 11,432 to 195,554, while the number of short non-commercial positions declined by 1,845 to 211,159. A low price of the euro is making it attractive for buyers. However, traders may switch to the US dollar at any moment amid high inflation and the necessity of a more aggressive policy of central banks. Last week’s results showed that the total non-commercial net position remained negative and decreased from -6,018 to -15,605. The weekly closing price rose from 1.0481 to 1.0598.

Indicator signals:

Moving averages

Trading is below the 30 and 50-day moving averages, which indicates the bears’ attempt to continue the euro’s decline.

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

In case of a decline, the lower border of the indicator around 1.0395 will act as support. In case of growth, the upper border of the indicator in the area of 1.0515 will act as 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 9Bollinger 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.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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