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EUR/USD: plan for the European session on January 18. COT reports. A downward correction in the euro could end at any moment

Relevance up to 06:00 2022-01-19 UTC+00

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

Yesterday, only one signal was formed to buy the euro. I suggest you look at the 5-minute chart and figure out what happened. Due to the lack of tests of 1.1401 and 1.1440 in the first half of the day, there were no market entry points formed. Euro bulls tried to reach 1.1440, euro bulls tried to reach 1.1440, but they clearly lacked confidence after the release of data on the Italian consumer price index, which completely coincided with economists’ forecasts. The pressure on the pair returned in the afternoon, however, after updating Friday’s lows, a false breakout formed at the level of 1.1401, which led to a signal to buy the euro. The upward movement was about 15 points and that was the end of it.

Before we talk about the future prospects of the EUR/USD movement, let’s look at what happened in the futures market and how the positions of Commitment of Traders have changed. 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.

The technical picture has slightly changed compared to yesterday, but in general, the market is still under the bears’ control. A number of quite interesting fundamental statistics are released in the first half of the day that could support the bulls, which will return the demand for risky assets. In case the euro falls, forming a false breakout at the level of 1.1387, by analogy with what I discussed above, will lead to creating a good entry point into long positions, counting on the completion of the downward correction for the pair. But, in addition, an active upward movement of the pair is also necessary. If the bulls are not able to offer anything when 1.1387 is tested, it is better not to rush with long positions. Crossing this channel boundary may lead to a larger sell-off. In this case, I advise buying EUR/USD only after updating the next support at 1.1354. However, I also advise entering the market there only if a false breakout is formed. You can immediately open long positions for a rebound from the 1.1324 low, aiming for an upward correction of 15-20 points within the day. An equally important task for the bulls is to regain control of the 1.1419 level, where the moving averages are playing on the bears’ side. A breakthrough and consolidation above this range, together with good data on the index of business sentiment in Germany and the eurozone from the ZEW institute, will certainly return the appetite for risks, which will form an excellent entry point for buying EUR/USD in order to recover to the next resistance of 1.1449. Going beyond this range will return the bull market and lead to an update of the highs: 1.1481 and 1.1514, where I recommend taking profits.

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

Bears control the market, but their control is very weak. The optimal scenario for selling the euro in the first half of the day is to form a false breakout at the level of 1.1419, where the moving averages are playing on the bears’ side, which creates an excellent entry point into short positions with the prospect of a further decline in EUR/USD to the area of morning support at 1.1387. Weak data on business sentiment in Germany and the eurozone, together with a breakdown and a reverse test from the bottom up of this range, will form another signal to enter the market, which will push the pair to a low like 1.1354 and open a direct road to 1.1324. A more distant target will be the 1.1294 area, where I recommend taking profits. A test of this level will be the end of the bull market seen earlier this year. In case the pair recovers during the European session and the bears are not active at 1.1419, the optimal scenario will be short positions when a false breakout is formed in the area of 1.1449. It is possible to open short positions on EUR/USD immediately on a rebound from the highs: 1.1481 and 1.1514, counting on a downward correction of 15-20 points.

Indicator signals:

Trading is below the 30 and 50 moving averages, indicating continued slight pressure on the euro

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 upper border of the indicator in the area of 1.1419 will lead to the growth of the euro. Crossing the lower border of the indicator in the area of 1.1387 will increase the pressure on 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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