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EUR/USD: plan for the European session on July 21. COT reports. Euro prepares for new growth after ECB meeting

Relevance up to 01:00 2022-07-22 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 the 1.0265 level in my morning forecast and advised you to make decisions on entering the market. The euro’s rise was relatively short-lived. Forming a false breakout at 1.0265 and a return below this level – all this resulted in an excellent sell signal, and then to a large sell-off to the 1.0175 area, which made it possible for us to talk about 90 points worth of profit from the market. The technical picture partially changed in the afternoon. After a small correction and the pair’s recovery to the area of 1.0225, the bears started to become more active again, and a false breakout at this level led to another sell signal, which resulted in one fall by 70 points.

When to go long on EUR/USD:

The euro was quite cheerfully bought off yesterday’s lows in today’s Asian session today. All this suggests that traders are betting a lot on today’s European Central Bank meeting and on the decisions that will be made at it. Obviously, the central bank will raise interest rates by 0.25%, but what is more important is what policy the central bank will follow next. We will learn about this during the speech of ECB President Christine Lagarde. After that we can expect a powerful burst of volatility and, in case she makes hawkish statements, count on the resumption of the bull market for the euro. In case the pair falls before the meeting, or it may happen that speculators decide to take profits, the bulls will have to defend the nearest support at 1.0195, formed on the basis of yesterday. After forming a false breakout there, you can count on a new upward jump in order to build a further upward trend and update the intermediate resistance at 1.0236. A breakthrough and test from the bottom of this range will hit the stop orders, providing a signal to enter long positions with the possibility of a larger increase to 1.0271, on which quite a lot will depend. We can talk about the continuation of the upward trend in these conditions only after hearing the decisions taken at the end of the committee meeting. The farthest target will be the area of 1.0321, where I recommend taking profits.

If the EUR/USD falls and there are no bulls at 1.0195, the pressure on the pair will increase. 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 area of 1.0160. I advise you to buy EUR/USD immediately on a rebound only from the level of 1.0122, or even lower – in the region of 1.0082, counting on an upward correction of 30-35 points within the day.

When to go short on EUR/USD:

The bears reminded of themselves yesterday, but now much depends on the ECB’s policy. If we assume a breakthrough of 1.0271, it is unlikely that any of the major bears will climb and resist the development of a new bullish trend with all their might. Obviously, in order to stop the pair’s growth, it is necessary to protect the nearest resistance at 1.0236. Bears also should not allow yesterday’s high to be updated at 1.0271, otherwise, as I said above, all their efforts will be in vain. In case EUR/USD grows in the first half of the day ahead of the results of the ECB meeting, forming a false breakout at 1.0236, it will be possible to receive a signal to open short positions with the prospect of falling to the area of 1.0195. A breakdown and consolidation below this level, as well as a reverse test from the bottom up – all this will lead to another sell signal with the removal of bulls’ stop orders and a larger movement of the pair towards the powerful support level of 1.0160. A breakthrough and consolidation below this area is a direct road to 1.0122, where I recommend completely leaving shorts. A more distant target will be the area of 1.0082.

In case EUR/USD moves up during the European session, as well as the absence of bears at 1.0236, I advise you to postpone shorts until a more attractive resistance at 1.0271. But forming a false breakout there will become a new starting point for entering short positions. You can sell EUR/USD immediately on a rebound from the high of 1.0321, or even higher – in the area of 1.0374, counting on a downward correction of 30-35 points.

COT report:

The Commitment of Traders (COT) report for July 12 logged an increase in both long and short positions, but the latter turned out to be much more, which indicates that the bearish sentiment in the market remains. This also led to a larger negative delta, as there aren’t many willing bulls even at non-current lows. The strong statistics in the US is to blame, where rising inflation and growth in retail sales led to the preservation of bullish sentiment towards the US dollar and further weakening of demand for risky assets. As long as the Federal Reserve raises rates, the dollar will rise. In the near future, a rather important report on inflation in the euro area is expected, which may once again point to another jump in price growth. If this happens, do not be surprised by a slight upward correction of the pair, but it is unlikely that it will be able to save from a repeated decline and another test of the euro’s parity against the dollar. The COT report found that long non-commercial positions rose only 102 to 197,240, while short non-commercial positions jumped 8,494 to 222,484. In many developed countries – all this continues to push for longs on the dollar. At the end of the week, the total non-commercial net position remained negative and amounted to -25,244 against -16,852. The weekly closing price dropped and amounted to 1.0094 against 1.0316.

Indicator signals:

Moving averages

Trading is conducted in the area of 30 and 50-day moving averages, which indicates some market uncertainty.

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 1.0160 will act as support. In case of growth, the upper border of the indicator in the area of 1.0236 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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