EUR/USD: plan for the European session on July 20. COT reports. A sharp jump in eurozone inflation strengthened the euro

EUR/USD Pair Has Potential For The Downside Movement Today

Relevance up to 08:00 2022-07-21 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Several market entry signals were formed yesterday. Let's take a look at the 5-minute chart and see what happened. I paid attention to the 1.0224 level in my morning forecast and advised you to make decisions on entering the market. The euro's growth as a result of rising inflationary pressure in the region led to the renewal of resistance at 1.0224 and a false breakout forming there. The sell signal didn't work out, because some time later there was a breakthrough and a reverse test of 1.0224 from top to bottom. This allowed us to exit short positions to zero and open long positions in continuation of the bull market. As a result, the pair went up another 40 points and hit the resistance at 1.0271. We got close to the level of 1.0271 several times in the afternoon, but I did not wait for its update, which did not allow me to enter the market in short positions. Those who did not wait for the update of 1.0271 point to point and sold under this level could earn about 40 points of profit.

 

Exchange Rates 20.07.2022 analysis

 

When to go long on EUR/USD:

Strong inflation in the euro zone led to a sharp upward spurt for the euro, while in the afternoon the absence of important statistics on the US did not allow the dollar to compensate for the losses, as it was the day before. Today there is nothing interesting in the economic calendar that would contribute to the pair's further growth. Also, a rather powerful divergence is forming on the hourly chart, which may limit the pair's upward potential in the short term. For this reason, I advise you to be quite careful with long positions. Further building of the bull market requires not only a breakthrough of 1.0265, but more importantly, a defense of 1.0208, where the moving averages play on the bulls' side. In case the pair falls after receiving weak data on German producer prices and the eurozone current account balance, the bulls will have to defend the immediate support of 1.0208. Forming a false breakout there, you can count on a new upward jump in order to build a further upward trend and update the resistance at 1.0265. A breakthrough and test down this range would hit the stops, signaling long positions with the possibility of a bigger upside to 1.0321. However, it is not yet possible to talk about the continuation of a major upward correction in these conditions. The farthest target will be the area of 1.0374, where I recommend taking profits.

If the EUR/USD declines and there are no bulls at 1.0208, which is more likely in the context of the euro correction moment after a three-day rally, the pressure on the pair will increase. 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 1.0168. I advise you to buy EUR/USD immediately on a rebound only from the level of 1.0127, or even lower - in the region of 1.0082, counting on an upward correction of 30-35 points within the day.

When to go short on EUR/USD:

The big bears have not shown themselves in any way yet, apparently counting on the removal of a large number of speculative sellers who took short positions last week at the very lows. Obviously, in order to stop the pair's succeeding growth, it is necessary to protect the nearest resistance at 1.0265. Bears should not allow yesterday's high to renew, otherwise all efforts will be in vain. In case EUR/USD grows in the first half of the day amid strong statistics from Germany, forming a false breakout at 1.0265, together with the divergence that has now formed on the MACD indicator, it will be possible to receive a signal to open short positions with the prospect of falling to the 1.0208 area. There must be a real fight over that range. Therefore, only a breakdown and consolidation below 1.0208, as well as a reverse test from the bottom up - all this will lead to another sell signal with the removal of bulls' stop orders and a larger movement of the pair towards the powerful support level of 1.0168. A breakthrough and consolidation below this area is a direct road to 1.0127, where I recommend completely exiting shorts. A more distant target will be the area of 1.0082.

If EUR/USD moves up during the European session, and there are no bears at 1.0265, and as we know, bulls can surprise lately, bears may start to have serious problems. In this scenario, I advise you to postpone short positions until a more attractive resistance at 1.0321 is in sight. Forming a false breakout there will become a new starting point for entering short positions. You can sell EUR/USD immediately on a rebound from the high of 1.0374, or even higher - in the area of 1.0437, counting on a downward correction of 30-35 points.

 

 

COT report:

The Commitment of Traders (COT) report for July 12 logged an increase in both long and short positions, but the latter turned out to be much more, which indicates that the bearish sentiment in the market remains. This also led to a larger negative delta, as there aren't many willing bulls even at non-current lows. The strong statistics in the US is to blame, where rising inflation and growth in retail sales led to the preservation of bullish sentiment towards the US dollar and further weakening of demand for risky assets. As long as the Federal Reserve raises rates, the dollar will rise. In the near future, a rather important report on inflation in the euro area is expected, which may once again point to another jump in price growth. If this happens, do not be surprised by a slight upward correction of the pair, but it is unlikely that it will be able to save from a repeated decline and another test of the euro's parity against the dollar. The COT report found that long non-commercial positions rose only 102 to 197,240, while short non-commercial positions jumped 8,494 to 222,484. In many developed countries - all this continues to push for longs on the dollar. At the end of the week, the total non-commercial net position remained negative and amounted to -25,244 against -16,852. The weekly closing price dropped and amounted to 1.0094 against 1.0316.

 

 

Indicator signals:

Moving averages

Trading is above the 30 and 50-day moving averages, which indicates an attempt to further correct the euro.

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 1.0208 will act as support. In case of growth, the upper border of the indicator in the area of 1.0265 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 9
  • Bollinger 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.

 

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EUR/USD Pair Has Potential For The Downside Movement Today

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