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EUR/USD: plan for the European session on January 24. COT reports. Bears aim for the 13th figure

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Relevance up to 05:00 2022-01-25 UTC+00

To open long positions on EUR/USD, you need:

Last Friday, several excellent entry points into the market were formed. Let’s look at the 5-minute chart and figure out what happened. In my morning forecast, I paid attention to the 1.1340 level and advised making decisions from it. Lack of important statistics in the first half of the day did not allow euro bulls to rise above the level of 1.1340. As a result, a false breakout was formed and a signal to sell the euro. And so the downward movement was about 15 points, after which the demand for the euro returned and the bulls managed to cross 1.1340. Good data on the consumer confidence indicator in the eurozone and the 1.1340 test from top to bottom during the US session led to a signal to buy the euro. The upward movement was about 15 points, after which the bulls’ initiative ended.

During the Asian session, trade again moved below the level of 1.1337 and now quite a lot will depend on the fundamental statistics for the eurozone. The primary task is to protect the support of 1.1303, which now acts as the lower boundary of a kind of horizontal channel in which the pair can spend the entire first half of this week before the release of the results of the Federal Reserve’s monetary policy meeting. Forming a false breakout at the level of 1.1303 can lead to creating a signal to buy the euro, but a larger upward correction will occur only in case we receive good data on the index of business activity in the manufacturing sector, the index of business activity in the services sector and the composite PMI index of Germany, France and the eurozone. An equally important task is to cross 1.1337 – the level that the bulls missed in today’s Asian session. This area is a kind of middle of the horizontal channel, on which, in addition, the moving averages that limit the pair’s upward potential also pass. A reverse test of this range from above will lead to another buy signal and open up the possibility of recovery to the area: 1.1368 and 1.1398, where I recommend taking profits. A more distant target will be the 1.1425 area. With the pair declining during the European session and the absence of bullish activity at 1.1303, the pressure on the euro may seriously increase. In this case, it is best to postpone long positions to a new low of 1.1273. However, I advise you to open long positions there when forming a false breakout. From the level of 1.1248 and 1.1224, you can buy EUR/USD immediately for a rebound, counting on an upward correction of 20-25 points within the day.

To open short positions on EUR/USD, you need:

Bears continue to control the market even despite all attempts by bulls to return the upward trend. The fact that the bears on Friday did not allow Thursday’s high to be updated indicates the continuation of a downward correction for the pair, which can only intensify in case we receive disappointing data on the eurozone today. An important task is to protect the resistance of 1.1337, in the area of which there are moving averages playing on the bear’s side. Forming a false breakout at this level will return pressure to the market and create the first entry point into short positions with the goal of pushing EUR/USD to the area of 1.1303. A breakthrough and a test from the bottom up of this range will provide another signal to open short positions with the prospect of falling to new large lows: 1.1273 and 1.1248. A more distant target will be the 1.1224 area, where I recommend taking profits. However, this level will be reached in the event of a panic sell-off of risky assets, which can easily occur with increased talk related to further actions of the Federal Reserve in relation to interest rates. If the euro rises and there are no bears at 1.1337, and it is quite possible that activity in the manufacturing and services sectors of the eurozone countries will be slightly better than economists’ forecasts, it is best not to rush with short positions. The optimal scenario will be short positions when forming a false breakout in the area of 1.1368. You can sell EUR/USD immediately for a rebound from 1.1398, or even higher – around 1.1425, counting on a downward correction of 15-20 points.

I recommend for review:

The Commitment of Traders (COT) report for January 11 revealed that long positions had increased while short ones decreased, which led to a change in the negative value of the delta to a positive one. The market is gradually changing and the demand for the European currency, despite the expected changes in the policy of the Federal Reserve, has not gone away. The US inflation data released last week did not make any impression on traders, as the result almost completely coincided with economists’ expectations. Against this background, Fed Chairman Jerome Powell spoke quite calmly about future interest rates at a time when many traders expected a more aggressive policy from the central bank. Currently, three increases are projected this year and the first of them will occur in March this year. The sharp decline in retail trade in the United States in December of this year also allows the Fed not to force events. Meanwhile, the European Central Bank plans to fully complete its emergency bond purchase program in March this year. However, the central bank is not going to take any other actions aimed at tightening its policy, which limits the upward potential of risky assets. The COT report showed that long non-commercial positions rose from the level of 199,073 to the level of 204,361, while short non-commercial positions fell from the level of 200,627 to the level of 198,356. This suggests that traders will continue to increase long positions on the euro in order to build an upward trend for the pair. At the end of the week, the total non-commercial net position became positive and reached 6005 against -1554. The weekly closing price rose slightly to 1.1330 against 1.1302 a week earlier.

Indicator signals:

Trading is conducted below the 30 and 50 day moving averages, which indicates a further fall in the euro in the short term.

Moving averages

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

A breakthrough of the lower limit of the indicator in the area of 1.1326 will lead to a larger drop in the euro. A breakthrough of the upper limit of the indicator in the area of 1.1355 will strengthen the demand for the pair.

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.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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