Fundamental analysis

EUR/USD: plan for the European session on November 4. COT reports. The euro continued to fall ahead of an important report

invest on stocks

Yesterday there were several signals for entering the market, but not all of them were profitable. Let’s take a look at the 5-minute chart and see what happened. Earlier, I asked you to pay attention to 0.9800 and advised you to sell from this level. Unfortunately, after surpassing this level, the reverse correction did not last until it was updated, so it was not possible to enter the market further along the bearish trend. A similar story happened in 0.9755, where, after a brief pause, the euro continued to fall. In the afternoon, a reverse test of 0.9747 and a false breakout were a signal for you to sell, but the downward movement was about 15 points. Closer to the middle of the US session, after the euro rapidly rose to the area of 0.9788, there was an excellent false breakout and another sell signal, which brought more than 40 points of profit.


When to go long on EUR/USD:

The slowdown in US service sector activity helped the bulls to stay above 0.9747 yesterday, which provoked even a slight upward correction in the afternoon. Today, the focus will shift to reports on the US labor market, so the statistics for the euro area, most likely, will pass by. We will receive reports on business activity indices in the services sector in Germany and the eurozone, as well as a composite PMI index. Eurozone producer prices are unlikely to have a strong influence on the market direction, so it is possible that the pair will remain in the horizontal channel with an advantage on the bears’ side. In the afternoon forecast we will talk about how the market will behave when the US unemployment rate data is published.

In case the euro falls during the European session, after a series of disappointing reports, a false breakout in the area of the nearest support of 0.9745 will become a reason to open long positions with the prospect of stopping the bear market. We can talk about the bulls’ attempts to regain control over the market only when the pair surpasses and settles above 0.9793, where the moving averages are, playing on the bears’ side. A downward test of this level will open a direct path to 0.9837 – a more significant level, where bears should prove themselves, if they are actually active after the Federal Reserve meeting. A break of this level would hit the bears’ stops and this will be another signal to open longs with the possibility of pushing the pair to the 0.9887 area, which would strengthen the bullish correction.

An exit above 0.9887 will serve as a reason for growth to the high of 0.9930, where I recommend locking in profits. If the pair falls and bulls fail to protect 0.9745, then the pair will be under pressure, leading to another big drop. In this case, the best decision to buy would be a false breakout near 0.9693. It is also possible to go long after a bounce from 0.9635, or even lower – from 0.9592, expecting a rise of 30-35 pips.

When to go short on EUR/USD:

The bears are in control of the market and rely heavily on strong data on the US economy. In the meantime, all they need is to protect resistance at 0.9793 in the morning, but even if you miss this level, nothing terrible will happen. The best time to open shorts would be at a false breakout of 0.9793 after obscure statistics on eurozone PMI indices and European Central Bank President Christine Lagarde’s speech together with ECB board member Joachim Nagel, which will provide an excellent entry point and make it possible for the pair to reach 0.9745.

Settling below this range, as well as a reverse test from the bottom up, will be a reason to sell EUR/USD in order to hit bullish stops and a larger fall to the 0.9693 area, where bears will again face serious problems. The farthest target will be the area of 0.9635, where I recommend taking profits. If EUR/USD moves up during the European session and bears fail to protect 0.9793, the demand for the pair is unlikely to increase, but this may lead to a slight correction towards 0.9837. In this case, I advise you not to rush into selling: I recommend opening shorts only after a false breakout. It is also possible to go short after a rebound from the high of 0.9887, or even higher – from 0.9930, expecting a decline of 30-35 pips.


COT report:

According to the recent Commitment of Traders (COT) report from October 25, the number of short positions declined, whereas the number of long positions increased. It is obvious that demand for the US dollar has fallen. The fact is that there are more and more signs of an economic recession caused by the extremely aggressive Fed policy. It is highly possible that this week, the FOMC will raise the benchmark rate and will continue doing this ignoring economic problems until inflation starts sliding. However, the upward potential of the euro is also limited. Not so long ago, the ECB said that it might revise its policy and switch to a more dovish approach if the eurozone economy contracted even more. According to the COT report, the number of long non-commercial positions increased by 24,031 to 226,734, while the number of short non-commercial positions declined by 2,728 to 151,825. At the end of the week, the total non-commercial net position remained positive at 74,909 compared to 48,150 a week earlier. This indicates that investors are benefiting from the situation and continue to buy the cheap euro below parity, as well as accumulate long positions, expecting the end of the crisis. The weekly closing price rose to 1.0000 from 0.9895.


Signals of indicators:

Moving averages

Trading is performed below the 30- and 50-day moving averages, which shows that the pair is still under pressure.

Note: The period and prices of moving averages are considered by the author on the one-hour chart, which differs from the general definition of the classic daily moving averages on the daily chart.

Bollinger Bands

If the euro/dollar pair rises, the upper limit of the indicator located at 0.9793 will act as resistance. If the pair drops, the lower limit of the indicator around 0.9730 will act as support.

Description of indicators

  • Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 50. It is marked in yellow on the chart.
  • Moving average (moving average, determines the current trend by smoothing volatility and noise). The period is 30. It is marked in green on the graph.
  • MACD indicator (Moving Average Convergence/Divergence – convergence/divergence of moving averages). A fast EMA period is 12. A slow EMA period is 26. The SMA period is 9.
  • Bollinger Bands. The period is 20.
  • Non-profit speculative traders are individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
  • Long non-commercial positions are the total number of long positions opened by non-commercial traders.
  • Short non-commercial positions are the total number of short positions opened by non-commercial traders.
  • The total non-commercial net position is a difference in the number of short and long positions opened by non-commercial traders.

The material has been provided by InstaForex Company –