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EUR/USD: plan for the European session on July 28. COT reports. The euro rose after another rate hike in the US.

Relevance up to 02:00 2022-07-29 UTC–4

Yesterday, an excellent signal to sell the euro was formed even before the announcement of the Federal Reserve’s decision on interest rates. Let’s take a look at the 5-minute chart and see what happened. I paid attention to several levels of support and resistance in my morning forecast and advised that you make decisions on entering the market from it. A decline and the forming a false breakout at this level resulted in creating an excellent entry point into long positions, which resulted in the pound’s growth by more than 50 points to the area of 1.2087. The bears acted more aggressively there, since this is still a weekly high. The false breakout and sell signal resulted in the pair dropping back to 1.2035, allowing another 50 points to be pulled out of the market. Even before the Fed’s decision on interest rates, a great buy signal was formed and if you stayed in the market, you could make good money, as the pound flew up by more than 150 points.

When to go long on EUR/USD:

The Federal Reserve’s decision to raise interest rates by 0.75% was expected, so it did not provide much support to the US dollar. Given that the position of Fed Chairman Jerome Powell softened a little, the demand for risky assets returned. Powell said he was ready to “slow down” with aggressive rate hikes in September, but everything will depend on the incoming data in August. Given that euro bulls now have all the cards in their hands, we can count on the continuation of the upward trend formed on July 14th. Statistics on inflation in Germany will be released in the first half of the day, which could harm the bulls’ plans to update the monthly high. In case the euro falls after the data on the consumer price index for June this year is released, forming a false breakout in the 1.0172 area will provide the first signal to open long positions in hopes of continuing yesterday’s upward trend with the prospect of updating the resistance of 1.0220. Moving averages are playing on the bulls’ side in the area of 1.0172, which will also be a plus. A downside breakthrough and test of 1.0220 would hit bearish stops, creating another signal to enter long positions with the possibility of a larger upward trend towards 1.0273, on which quite a lot will depend. The farthest target will be the area of 1.0323, where I recommend taking profits.

If the EUR/USD declines and there are no bulls at 1.0172, which cannot be ruled out either, the pressure on the pair will increase, but this will not lead to a breakthrough in the upward trend. 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 1.0134. I advise you to buy EUR/USD immediately on a rebound only from the level of 1.0099, 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 were defeated yesterday following the Fed meeting, but up to this point everything has been in their favor. Now only weak data on Germany and the indicator of consumer confidence in the eurozone will be able to stop the bull market. Resistance at 1.0220 should be protected in order to return the pressure on EUR/USD, the breakdown of which will return the pair to monthly highs. Forming a false breakout there will provide an excellent signal to open short positions with the prospect of a decline to the intermediate support area of 1.0172, where the moving averages are. 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 1.0134 area. Consolidating below this area is a direct road to 1.0099, where I recommend completely leaving shorts. A more distant target will be the area of 1.0045, but it will be available only in case we receive very strong data on the growth rates of the US economy in the 2nd quarter of this year.

In case EUR/USD moves up during the European session, as well as the lack of bears at 1.0220, which is more likely, I advise you to postpone short positions to this month’s high of 1.0273. Forming a false breakout there will be a new starting point for entering shorts. You can sell EUR/USD immediately on a rebound from the high of 1.0323, 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 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.

Indicator signals:

Moving averages

Trading is conducted above the 30 and 50-day moving averages, which indicates the likelihood of the euro’s succeeding growth.

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 1.0099 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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