In my morning forecast, I highlighted the level of 1.0715 and recommended making trading decisions based on it. Let's look at the 5-minute chart and analyze what happened there. The decline and the formation of a false breakout at this level allowed for a good entry point for long positions, increasing by approximately 20 points. The signal is still valid at the time of writing this article. Therefore, the technical picture still needs to be revised.
To open long positions on EUR/USD, the following conditions are required:
The decrease in Germany's GDP did not add optimism to traders, causing the euro to continue to fall. The second half of the day is scheduled to release a series of data on changes in the US GDP, as well as the weekly number of initial jobless claims. The change in the volume of pending home sales in the US will also play a certain role, but it is unlikely to impact intraday volatility significantly. Reasonable data and a strong labor market will allow the dollar to continue exerting pressure on the European currency, leading to another sell-off of EUR/USD. Adding to this the issues with the US government debt, there is unlikely to be a desire to buy euros even at current prices.
For this reason, I will continue to act based on the morning scenario. Buying predominates in the market as long as trading is conducted above 1.0715. Another decline and the formation of a false breakout at this level will confirm the presence of those willing to push the euro up against the bearish trend, providing another opportunity to enter long positions with a target at the nearest resistance level of 1.0757, where the moving averages are located, supporting the bears. A breakthrough and a top-down test of this range following weak GDP reports from the US and breakthroughs in negotiations to raise the US debt ceiling will strengthen the demand for the euro, creating an additional entry point for further long positions with an update of the maximum around 1.0795. The ultimate target remains around the 1.0833 area, where I will take profits.
In the event of a further decline in EUR/USD and the absence of buyers at 1.0715 in the second half of the day, which is more likely, we can expect the trend to develop. Therefore, only a false breakout in the area of the next support level at 1.0674 will signal a buying opportunity for the euro. I will open long positions starting from the minimum of 1.0634 with a target of a 30-35 pip upward correction within the day.
To open short positions on EUR/USD, the following conditions are required:
Sellers have partially achieved their targets, as breaking below 1.0715 has yet to happen. Protecting the nearest resistance at 1.0757 remains a priority task and a suitable scenario for increasing short positions in continuation of the trend in the second half of the day. A false breakout at this level will signal a sell-off capable of pushing the pair toward the minimum of 1.0715. Consolidation below this range and a reverse test from below to above will pave the way toward 1.0674. The ultimate target will be a minimum of 1.0634, where profits will be taken. In the event of an upward movement of EUR/USD during the American session and the absence of bears at 1.0757, a correction in the pair can be expected. In that case, I will postpone opening short positions until the level of 1.0795. Selling can also be done there, but only after an unsuccessful consolidation. I will immediately open short positions on a rebound from the maximum of 1.0833 with a 30-35 point downward correction target.
In the COT report (Commitment of Traders) for May 16th, there was a reduction in both long and short positions, but the latter turned out to be significantly larger. The corrective downward movement of the euro we observed last week remains a great opportunity to increase long positions. However, once the issue of US government debt is resolved, we will likely see a significant demand for risk assets. Traders are even ignoring statements from Federal Reserve representatives, who unanimously assert that the committee will pause the rate hike cycle at the upcoming meeting, which is a bullish signal for the euro. So, as soon as the debt ceiling issue is resolved, buyers will return to the market, but we need to wait a little longer for that. The COT report indicates that non-commercial long positions decreased by only 1,599 to 258,736, while non-commercial short positions decreased by 9,266 to 71,647. As a result, the overall non-commercial net position increased to 187,089 from 179,422. The weekly closing price decreased to 1.0889 from 1.0992.
Indicator Signals:
Moving Averages
Trading occurs below the 30-day and 50-day moving averages, indicating a continuation of the bearish market.
Note: The author considers the period and prices of the moving averages on the hourly chart (H1), which differs from the general definition of classical daily moving averages on the daily chart (D1).
Bollinger Bands
In case of an upward movement, the upper boundary of the indicator around 1.0760 will act as resistance.
Description of Indicators:
• Moving average (determines the current trend by smoothing out volatility and noise). Period 50. Marked in yellow on the chart.
• Moving average (determines the current trend by smoothing out volatility and noise). Period 30. Marked in green on the chart.
• MACD (Moving Average Convergence/Divergence) indicator. Fast EMA period 12. Slow EMA period 26. SMA period 9.
• Bollinger Bands. Period 20.
• Non-commercial traders - speculators such as individual traders, hedge funds, and large institutions using the futures market for speculative purposes and meeting 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.
• The overall non-commercial net position is the difference between non-commercial traders' short and long positions.
