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EUR/USD: plan for the European session on July 22. COT reports. The ECB raised rates immediately by 0.5%. The lack of demand

Relevance up to 02:00 2022-07-23 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 1.0195 level in my morning forecast and advised you to make decisions on entering the market. A breakthrough and reverse test of this level from the bottom up gave an excellent signal to sell the euro. As a result, the downward movement was about 20 points, but I did not see a larger fall of the pair. The euro rose to the area of 1.0271 after the European Central Bank announced its decision, but a false breakout at this level led to a sell signal. As a result, the pair fell by more than 100 points. After a sharp downward move, the bulls once again defended 1.0171, which led to a buy signal and a 40 point gain in the euro.

When to go long on EUR/USD:

Yesterday, the ECB announced its decision to raise its key interest rate by 50 basis points, which was the first increase in 11 years and the largest since 2000. It is obvious that serious problems with rising inflation, even in the face of growing recession risks, are forcing the central bank to make such serious changes in monetary policy. However, the euro has hardly reacted to the changes, as with all this, ECB President Christine Lagarde and her colleagues also presented a tool that, they hope, will allow not too aggressively raising the cost of borrowing in vulnerable economies. Today we expect reports on activity in the euro area, which may aggravate the euro’s position against the dollar. I advise you to focus on the index of business activity in the manufacturing sector, the index of business activity in the services sector and the composite index of business activity in the euro area for July this year. In case the pair falls after we receive disappointing statistics, which is exactly what is expected, the bulls will have to defend the nearest support at 1.0156. The test of this level will be the third in a row, so after forming a false breakout there, by analogy with what I analyzed above, you can count on a new upward jump in order to build a further upward trend and update the intermediate resistance at 1.0214. A breakthrough and test from the bottom of this range will hit stop orders, providing a signal to enter long positions with the possibility of a larger increase to 1.0274, on which quite a lot will depend. The farthest target will be the area of 1.0321, where I recommend taking profits.

In case EUR/USD falls and there are no bulls at 1.0156, pressure on the pair will increase as the upward trend will be broken completely. 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 1.0122. I advise you to buy EUR/USD immediately on a rebound only from the level of 1.0082, or even lower – in the region of 1.0045, counting on an upward correction of 30-35 points within the day.

When to go short on EUR/USD:

The bears reminded themselves yesterday after an active attempt by the bulls to get out of the weekly high. Now, in order to maintain pressure on the pair, it is necessary to protect the nearest resistance at 1.0214. Bears should also not allow this week’s high at 1.0274 to be updated, otherwise all their efforts to build a downward trend will be in vain. In case EUR/USD grows in the first half of the day if we receive strong statistics on activity in the eurozone, forming a false breakout at 1.0214 can make it possible for us to receive a signal to open short positions with the prospect of falling to the area of 1.0156. 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’ stops and a larger movement of the pair to the 1.0122 area. A breakthrough and consolidation below this area is a direct road to 1.0082, where I recommend completely exiting short positions. A more distant target will be the area of 1.0045.

In case EUR/USD moves up during the European session, as well as the absence of bears at 1.0214, I advise you to postpone short positions until a more appealing resistance at 1.0274. But forming a false breakout there will become a new starting point for entering short positions. You can sell EUR/USD immediately for 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 1.0156 will act as support. In case of growth, the upper border of the indicator in the area of 1.0250 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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