Euro To US Dollar (EUR/USD) - What's Needed For Longs And Shorts?

Relevance up to 13:00 2022-06-07 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.

In the morning article, I highlighted the level of 1.0750 and recommended taking decisions with this level in focus. Now let's look at the 5-minute chart and try to figure out what actually happened. The empty economic calendar affected market volatility as expected. As a result, the bears easily defended the resistance level of 1.0750. It led to a false breakout and a sell signal. At the time of writing the article, the pair dropped by about 25 pips. So, the euro remained under pressure. Apparently, the bears are now aiming at the 1.0711 level. Technical indicators have not changed as well as the trading strategy.

What is needed to open long positions on EUR/USD

Given that the economic calendar is empty in the afternoon, it is difficult to say how EUR/USD could escape the sideways channel. To this end, it is better to open trades focusing on this channel. If the euro drifts lower and the US Labor Market Conditions Index is positive, only a false breakout of the level of 1.0711 will give a buy signal. In this case, a sharper upward movement to the resistance level of 1.0750 is possible. So far, the pair has been unable to break above this level. A breakout and a downward test of this level will undermine sellers' stop-loss orders, offering a buying opportunity. After that, the price may reach the monthly high of 1.0785 where I recommend locking in profits. The pair is unlikely to rise to a more distant target of 1.0820. If EUR/USD slides down and bulls show no activity at 1.0711, the euro may decrease lower. A drop in buyers' stop-loss orders below this level will push the pair to 1.0673. This is why it is recommended to open long positions will be a false breakout. It is better to buy EUR/USD immediately at a bounce from the level of 1.0630 or even a lower of 1.0596, keeping in mind an upward intraday correction of 30-35 pips.

What is needed to open short positions on EUR/USD

The bears successfully defended 1.0750 in the first half of the day. As long as trading is carried out below 1.0750, the pair is highly likely to tumble to the morning support level of 1.0711. If EUR/USD jumps in the afternoon, only a false breakout of 1.0750, similar to one I analyzed earlier on the 5-minute chart, will generate a sell signal. If so, there could be a breakout of the support level of 1.0711. Given that trading is carried near the moving averages it increases market uncertainty. A new sell signal may appear after a breakout and a decrease below 1.0711. EUR bulls will rush to close their stop-loss orders, pushing the pair to 1.0673. A breakout of 1.0673 may also take place. In this case, a more distant target will be the 1.0630 level where I recommend closing all the positions. If EUR/USD rises during the US session and bears show no energy at 1.0750, the bulls are likely to regain ground. In this case, the uptrend may persist. It is better to open short positions after a false breakout of 1.0785. You can sell EUR/USD immediately at a bounce from the monthly high of 1.0820 or even a high of 1.0853, keeping in mind a downward intraday correction of 30-35 pips.

COT report

The COT report (Commitment of Traders) for May 24 logged a further increase in long positions and a decline in short ones. Traders continued to open long positions amid expectations of a more aggressive monetary policy tightening by the ECB. The euro managed to climb higher despite a few comments from ECB policymakers last week on key rate hikes. The ECB is widely expected to raise the cash rate by a quarter-point in July this year, followed by rate hikes in September and in December. As a result, the interest rate may reach 0.25% by the end of the year. However, some analysts are confident that the ECB will be forced to take more aggressive measures. The regulator is sure to be guided by inflation data for May. Consumer prices are projected to soar to 7.7% per annum. The key interest rate is likely to be raised in September and December to 0.5% from the current zero level. The COT report revealed that the number of long non-commercial positions increased by 6,302 the level of 237,072 from the level of 230,770. The number of short non-commercial positions fell by -12,289 to the level of 198,142 from the level of 210,431. As I have already mentioned, the weak euro is more attractive for medium-term traders. A rise in long positions has only confirmed it. At the end of the week, the total non-commercial net position lifted up to 38,930 against 20,339 a week earlier. The weekly closing price jumped to 1.0734 against 1.0556.

Signals of technical indicators

Moving averages

EUR/USD is trading near 30- and 50-period moving averages, which indicates market uncertainty.

Remark. The author is analyzing the period and prices of moving averages on the 1-hour chart. So, it differs from the common definition of classic daily moving averages on the daily chart.

Bollinger Bands

In case of a decline, the lower border of 1.0710 will act as support. In case of a rise, the upper border of 1.0750 will act as resistance.

Definitions of technical indicators

Moving average recognizes an ongoing trend through leveling out volatility and market noise. A 50-period moving average is plotted yellow on the chart.
Moving average identifies an ongoing trend through leveling out volatility and market noise. A 30-period moving average is displayed as the green line.
MACD indicator represents a relationship between two moving averages that is a ratio of Moving Average Convergence/Divergence. The
MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-day EMA of the MACD called the "signal line".
Bollinger Bands is a momentum indicator. The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average.
Non-commercial traders - speculators such as retail traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
Non-commercial long positions represent the total long open position of non-commercial traders.
Non-commercial short positions represent the total short open position of non-commercial traders.
The overall non-commercial net position balance is the difference between short and long positions of non-commercial traders.