Relevance up to 02:00 2022-07-28 UTC–4
Yesterday was a rather difficult day for making decisions on entering the market. Let’s take a look at the 5-minute chart and see what happened. I paid attention to the 1.0208 level in my morning forecast and advised you to make decisions on entering the market. A decline to the area of 1.0208 and a false breakout amid the absence of important fundamental statistics – all this kept hope for the euro’s succeeding growth and gave a signal to open long positions. Unfortunately, after moving up by 10 points, the pair was under pressure again and a breakthrough of 1.0208 took place. As a result, losses on the transaction were recorded. The euro continued to fall in the afternoon. There was hope for the 1.0132 level, but it was broken, and I did not see a reverse return to this range, at which it would be possible to enter the market for a long position.
When to go long on EUR/USD:
Weak data on consumer confidence in the US did not put serious pressure on the US dollar and did not help the euro to correct its position at the end of the day. In today’s European session, there are no statistics that could radically change the balance of power in the market even before the Federal Reserve meeting. Only reports on the leading consumer climate index in Germany and the volume of lending to the private sector in the euro area. Obviously, a lot will depend on what further policy the US central bank will adhere to in relation to interest rates. If it is tighter than forecast, demand for the dollar will return and we will see another major sell-off in the pair. If everything remains within the expectations of economists, and the rates themselves are raised by only 0.75%, buyers of risky assets will most likely return to the market. The euro’s decline in the first half of the day to the support area of 1.0125 and forming a false breakout there – all this will be the first signal to open long positions in hopes of a jump in order to build a further upward trend and update the intermediate resistance of 1.0171, where the moving averages, playing on the bears’ side. Only a breakthrough and a downward test of this range will hit stop orders, providing a signal to enter long positions with the possibility of a larger increase to 1.0220, on which quite a lot will depend. The farthest target will be the area of 1.0273, which we will be able to reach only after the Fed’s decision. I recommend taking profit there.
If the EUR/USD declines and there are no bulls at 1.0125, which cannot be ruled out either, the pressure on the pair will increase, as the upward trend will be broken. Going beyond the horizontal channel will have a negative impact on the euro. 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 1.0082. I advise you to buy EUR/USD immediately on a rebound only from the level of 1.0045, or even lower – in the region of 1.0008, counting on an upward correction of 30-35 points within the day.
When to go short on EUR/USD:
The market equilibrium will remain before the Fed’s important meeting. Most likely, the pair will spend the first half of the day in a horizontal channel with an attempt to correct to the area of 1.0171. Strong eurozone data could help with that. To maintain pressure on the EUR/USD, this resistance needs to be protected. Forming a false breakout at 1.0171 will provide an excellent signal to open short positions with the prospect of further decline to the intermediate support area of 1.0125. A breakthrough 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 1.0082 area. A breakthrough and consolidation below this area is a direct road to 1.0045, where I recommend completely leaving short positions. The more distant target will be the 1.0008 area, but it will be available only in case of new aggressive Fed plans regarding interest rates and fighting inflation.
In case EUR/USD moves up during the European session, as well as the absence of bears at 1.0171, I advise you to postpone short positions until a more attractive resistance at 1.0220 is within reach. 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 1.0273, or even higher – in the area of 1.0321, counting on a downward correction of 30-35 points.
The Commitment of Traders (COT) report for July 19 logged an increase in short positions and a reduction in long positions, which indicates that the bearish sentiment in the market remains. This has also resulted in a larger negative delta, suggesting that there are still not as many bulls as one might think. Last week, the European Central Bank raised interest rates by 0.5% at once, which was beyond the expected forecast of 0.25%. This indicates the seriousness of the situation in the euro area with inflation. However, the markets reacted poorly to this decision, and traders took a wait-and-see attitude before an important Federal Reserve meeting, the results of which will be known in the middle of this week. The fact that the euro has not risen once again indicates the likelihood of a further decline in risky assets this autumn, since there are no real reasons for the EUR/USD to strengthen: high inflation, a crisis in the energy market and the economy is rapidly slipping into recession. The COT report indicated that long non-commercial positions decreased by 1,365 to 195,875, while short non-commercial positions jumped 16,136 to 238,620. At the end of the week, the total non-commercial net position remained negative and amounted to -42,745 against -25,244. The weekly closing price slightly increased and amounted to 1.0278 against 1.0094.
Trading is below the 30 and 50-day moving averages, which indicates the likelihood of a bear market resumption after the Fed meeting.
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.
In case of a decline, the lower border of the indicator around 1.0100 will act as support. In case of growth, the upper border of the indicator in the area of 1.0160 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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