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EUR/USD: plan for the European session on January 28. COT reports. Strong US GDP left no chance for euro bulls

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Relevance up to 05:00 2022-01-29 UTC+00

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

Several good entry points were formed yesterday. Let’s look at the 5-minute chart and figure out what happened. In my morning forecast, I paid attention to the 1.1208 level and recommended that decisions on entering the market be made from it. The lack of activity on the part of euro bulls after the Federal Reserve meeting led to an instant breakdown and consolidation below 1.1208. The reverse test from the bottom up, which I paid attention to in the morning, formed a sell signal further along the trend, as a result of which the pair fell to the critical support of 1.1180. A breakthrough of this level did not take long, but it was not possible to get an entry point into short positions from there due to the lack of a reverse test. During the US session, it was already possible to observe long positions for a rebound from 1.1155, but the upward movement was only 15 points against the trend, after which the pressure on the euro returned. A breakthrough and an unsuccessful attempt to return to 1.1155 – all this formed two good signals to sell EUR/USD in the middle of the US session.

Strong GDP growth in the US only increased demand for the US dollar, which led to a major sell-off of the pair in the afternoon. An interesting series of fundamental statistics on the eurozone will be released today, but it is unlikely to seriously help the bulls compensate for the losses that we have seen this week.

Now the primary task is to protect the support of 1.1118, the test of which must necessarily take place in the first half of the day, as this will allow new bulls to enter the market and indicate the end of the short-term downward trend. Forming a false breakout at this level, together with the divergence on the MACD indicator, will lead to creating a signal to buy the euro, but be careful with trading against the bear market. While the bottom low has not been found, corrections even after updating the next lows will be insignificant – yesterday’s slight rebound from 1.1155 is proof of this. An equally important task is to regain control of the resistance of 1.1167, just above which the moving averages are playing on the bears’ side. A breakthrough and a reverse test from the top down of this range will lead to another buy signal and open up the possibility of a recovery to the area: 1.1200. A more distant target will be the level of 1.1236, but it is possible to count on updating this range only after strong statistics on the GDP growth rates of France and Germany at the end of last year. I also recommend taking profits there.

With a further decline in the pair during the European session and the absence of bullish activity at 1.1118, the pressure on the euro may seriously increase. In this case, it is best to postpone long positions to a low of 1.1081. However, I advise you to open long positions there when forming a false breakout. Buy the euro immediately for a rebound from the 1.1034 level with the goal of an upward correction of 20-25 points within the day. A lot will depend on the release of data on the US economy, so the focus is likely to shift to the afternoon.

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

Bears continue to control the market, and after yesterday’s US GDP data, the pressure on risky assets has only increased. The fact that bears managed to cross the important 1.1180 support yesterday and trading is below 1.1160 – all this indicates a strong bearish trend. An important task for the first half of the day is to protect the resistance of 1.1167. Given that fundamental statistics are expected to be very weak in the eurozone today, it will be difficult for bulls to offer something to break through this level. Forming a false breakout at 1.1167 will return pressure on the pair and create the first entry point into short positions with the goal of further pushing EUR/USD to the area of 1.1118.

A breakthrough and a bottom-up test of this range will provide another signal to open short positions with the prospect of falling to large lows: 1.1081 and 1.1034. The 1.0994 area will be a more distant target, but it will be available if we receive very strong data on Americans’ spending and income, which will increase retail sales and only spur inflation to growth – thereby forcing the Federal Reserve to be more active. I recommend taking profits there.

In case the euro grows and the bears are not active at 1.1167, 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 1.1200. You can sell EUR/USD immediately for a rebound from 1.1236, or even higher – around 1.1265 while aiming for a downward correction of 15-20 points.

I recommend for review:

The Commitment of Traders (COT) report for January 18 revealed that long positions had increased while short ones decreased, leading to an increase in the positive delta. Generally speaking, the euro is still in demand despite the expected changes in the monetary policy of the Federal Reserve. The deeper the correction, the higher the demand. The Federal Reserve will announce its policy decision today. Some traders expect the central bank to raise the interest rate already in January. A shrink in the regulator’s balance sheet will also be announced. A lot now depends on Chairman Powell’s rhetoric. If he expresses concerns about US inflation, demand for the US dollar will most likely only increase. As many as 4 rate hikes are expected this year. Some major market players suggest there will be even 5 of them. The ECB is planning to end its PEPP already in March. At the same time, the regulator is not ready to take further actions aimed at tightening its policy, which limits the upward potential of risky assets. The COT report revealed an increase in long non-commercial positions to 211,901 from 204,361 and a fall in short non-commercial positions to 187,317 versus 198,356. Traders continue to increase long positions on EUR/USD, hoping for an uptrend. The positive non-commercial net position rose to 24,584 from 6,005. The weekly closing price grew to 1.1410 versus 1.1330 a week earlier.

Indicator signals:

Trading is conducted below the 30 and 50 day moving averages, which indicates the continuation of the downward trend.

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

Crossing the lower limit of the indicator in the area of 1.1118 will lead to a fall in the euro. Crossing the upper limit of the indicator in the area of 1.1167 will lead to a correction of 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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