In my previous forecast, I drew your attention to the level of 0.9906 and recommended entering the market from it. Let’s have a look at the 5-minute chart and analyze the situation there. The price rose and formed a false breakout at this level which gave a good entry point into short positions. As a result, the pair declined by 20 pips, after which the demand returned. In the afternoon, the technical picture did not change, as well as the trading plan.
Long positions on EUR/USD:
The market is waiting for the Federal Reserve’s interest rate decision and the statements from Chairman Jerome Powell. However, it is also worth paying attention to the Fed’s plans to raise interest rates in the future. If the former strategy the regulator announced a 0.75% hike today, another increase of 0.75% in December as well as adding 0.5% at the beginning of next year. It is a bullish scenario for the US dollar. The currency is likely to strengthen and the euro may depreciate in the near future. If we see the Fed adding 0.75% today, 0.5% in December, and 0.25% early next year, it is a direct signal to buy the euro with the target located above parity counting on a new bull market. In addition, there will be the US ADP Non-Farm Employment Change but it will hardly affect the market. If the euro declines, only a false breakout below 0.9857 will give a signal to go long with and continue the uptrend. This is likely to send the pair back to the resistance of 0.9906, which the pair failed to break through earlier today. If the US data appears to be weak, a breakthrough and a top/bottom test of this level will allow the price to reach the highs of 0.9950 and 1.0000, opening the way to 1.0042. The next target is located in the area of 1.0090, where traders may lock in profits. However, the euro can make such a bullish rush if Jerome Powell’s rhetoric is very dovish. If the EUR/USD pair declines during the US session and we see weak activity from bulls at 0.9857, the pressure on the pair is likely to increase, as bulls may continue to take profits before the Fed meeting. In that case, only a false breakout at the support of 0.9816 can provide an opportunity to buy the euro. You may also open long positions on a rebound from the support of 0.9784 or near the low of 0.9747, allowing an upward intraday correction of 30-35 pips.
Short positions on EUR/USD:
Bears failed to show some activity near 0.9906 today. At the same time, they protected this level and the bearish scenario still may come true after the Fed meeting. As long as the pair is trading below 0.9906, bears are keeping the market under control. If there is a false break out near the resistance of 0.9906, which will indicate that there are big players in the market, who expect the euro to fall after the FOMC meeting, it creates a good entry point into short positions. In this case, one can expect a new decline and a test of 0.9857, which the price failed to pierce yesterday. A bottom/top test of 0.9857 is likely to give a sell signal. Bulls’ Stop Loss orders may be triggered and the euro can drop to 0.9816, where traders may take profits. We can expect the price to move below this level only after strong US data. If the euro increases during the US session and bears show weak trading activity at 0.9906, the pair may increase to the area of 0.9950. In that case, it would be better to postpone selling the euro until it reaches this level or above the parity of 1.0000. Meanwhile, if the pair forms a false breakout at that level, it may give an additional entry point into short positions. It is possible to sell the euro on a rebound from a high of 1.0042 or from 1.0090, allowing a downward correction of 30-35 pips.
On October 25, the COT report logged a decrease in short positions and an increase in long positions. The US dollar is not demanded as it used to be, as there are more and more signs of the economy sliding into recession due to the Fed’s aggressive monetary policy. The FOMC is likely to raise the interest rates again this week and will continue to do so until inflation actually starts to cool down, while the economy may suffer. However, the bullish potential of the European currency is also limited. Recently, the ECB has made a rate hike its aggressive policy may be reviewed if the eurozone economy continues to shrink. The COT report showed that long non-commercial positions rose by 24,031 to 226,734, while short non-commercial positions declined by 2,728 to 151,825. At the end of the week, total non-profit net positioning remained positive at 74,909 against 48,150 the week before. This indicates that investors are seizing the moment and continue to buy the cheap euro below parity and accumulate long positions, counting on the end of the crisis and the pair’s long-term recovery. The weekly closing price rose to 1.0000 against 0.9895.
The pair is trading near the 30- and 50-day moving averages, indicating uncertainty in the market.
Note: Period and prices of moving averages are considered by the author on hourly chart H1 and differ from the common definition of classic daily moving averages on daily chart D1.
If the price declines, the lower boundary of the indicator at 0.9870 will act as support.
Description of indicators
- Moving average defines the current trend by smoothing out market volatility and noise. Period 50. Marked in yellow on the chart.
- Moving average defines the current trend by smoothing out market volatility and noise. Period 30. Marked in green on the chart.
- MACD (Moving Average Convergence/Divergence) indicator. Fast EMA 12. Slow EMA 26. SMA 9
- Bollinger Bands. Period 20
- Non-commercial traders are speculators, such as individual traders, hedge funds, and large institutions, which 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 material has been provided by InstaForex Company – www.instaforex.com