Relevance up to 06:00 2022-07-25 UTC–4
Analysis of Friday’s deals:
30M chart of the EUR/USD pair
The EUR/USD currency pair again showed quite volatile movements on Friday. Several reports were published in the European Union and America. They could be considered insignificant, but their significance made traders take them seriously. Yesterday we warned that in case of a strong deviation of the actual values of business activity indices from the forecast, a reaction is possible. And this time the reaction was almost unambiguous. For example, business activity indices in the eurozone turned out to be much lower than forecasts, and two indices turned out to be below the level of 50.0, which is a negative trend. Therefore, the euro was falling in the first half of the day. US business activity indices came out in the afternoon and two of them also fell below the level of 50.0, so the dollar was already falling at that time. Unfortunately, when the market reacts to macroeconomic statistics, the “technique” fades into the background, since the market cannot simultaneously work out the statistics and take into account the existing levels. As a result of the day, the pair remained in the horizontal channel of 1.0156-1.0269, as well as near its local highs. Therefore, it retains almost equal chances for further growth and for the resumption of a long-term decline.
5M chart of the EUR/USD pair
You can clearly see on the 5-minute timeframe how the pair began to fall sharply in the morning, and a strong upward movement in the afternoon. Unfortunately, it was not possible to “catch” the morning fall, the first sell signal was formed only when the downward momentum had practically dried up. Consolidating below the level of 1.0156 allowed novice traders to open short positions, but it was not possible to get profit on them. The pair hardly went down 15 points, so at least Stop Loss was set to breakeven. According to it, the deal for short positions was closed. This was followed by a signal for longs near the same level of 1.0156. Afterwards the pair went up about 90 points. At the end of the movement, the quotes even overcame the level of 1.0235, but could not move further up. Therefore, you should have left the long with a reverse consolidation below the level of 1.0235. Profit on this transaction amounted to about 50 points.
How to trade on Monday:
The upward trend has been formally canceled on the 30-minute timeframe. The euro could still rise, but it is much more likely, based on technical analysis, that the fall will resume. The market has, in principle, worked out the main driver of euro growth in the form of an increase in the European Central Bank key rate by 0.5%. Now it has to work out a Federal Reserve rate hike of at least 0.75%. On the 5-minute TF on Monday, it is recommended to trade at the levels of 1.0072, 1.0123, 1.0156, 1.0235, 1.0269-1.0277, 1.0354. When passing 15 points in the right direction, you should set Stop Loss to breakeven. No important reports will be published in the European Union and America on Monday. Therefore, the pair may remain inside the horizontal channel of 1.0156-1.0269 during the day. However, the Fed’s meeting may start as early as Monday, as was the case with the ECB meeting this week. Therefore, you need to be ready for a strong movement.
Basic rules of the trading system:
1) The signal strength is calculated by the time it took to form the signal (bounce or overcome the level). The less time it took, the stronger the signal.
2) If two or more deals were opened near a certain level based on false signals (which did not trigger Take Profit or the nearest target level), then all subsequent signals from this level should be ignored.
3) In a flat, any pair can form a lot of false signals or not form them at all. But in any case, at the first signs of a flat, it is better to stop trading.
4) Trade deals are opened in the time period between the beginning of the European session and until the middle of the US one, when all deals must be closed manually.
5) On the 30-minute TF, using signals from the MACD indicator, you can trade only if there is good volatility and a trend, which is confirmed by a trend line or a trend channel.
6) If two levels are located too close to each other (from 5 to 15 points), then they should be considered as an area of support or resistance.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important speeches and reports (always contained in the news calendar) can greatly influence the movement of a currency pair. Therefore, during their exit, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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