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08.04.2021 02:30 PM
EUR/USD: trading plan for US session on April 8 (overview of morning trade). Bears cap EUR's climb above 1.1885, thus creating sell signal

What is needed to open long positions on EUR/USD

In the morning article, I turned your attention to resistance of 1.1885 and recommended trading with that resistance in focus. Now let's look at a 5-minute chart and figure out the market entry point. We see that the bulls are making efforts to regain control over resistance of 1.1885, but such efforts are in vain. After a breakout, the currency pair retraces back to under this level, forming an excellent entry point with short positions during a fake breakout. As a result, the price moved nearly 22 pips that almost coincides with intraday volatility. The price undershot mere 5 pips until the target level of 1.1858. So, it was not the case to wait until a buy signal emerges there.

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The bears landed a series of good punches on the bulls in the first half of the day. However, the technical picture hardly changed. A trading strategy for the US session is basically the same. EUR/USD remains in the range of 1.1859 – 1.1885. The next move will depend on the direction which the price will escape the corridor.

The economic calendar reminds us of a weekly update from the US Labor Department and a speech by Fed's Chairman Jerome Powell. Hence, traders are betting on a further advance of the US currency. Nevertheless, EUR's spike in the middle of the European session gives hope to the buyers. If the bulls make the second breakout and insist on a fixation above this level as well as test it downwards, all this will create a signal to open new long positions during a further uptrend with the price climbing to the swing high of 1.1913 where I recommend profit taking. The higher target is seen at 1.1947, but this level could be achieved on condition of poor fundamental data from the US or unexpected remarks from the Fed's leader on further monetary policy.

In case EUR/USD declines in the second half of the day, the bulls' task is to defend support of 1.1859 because this support determines a further growth of the pair. Only a fake breakout there will create a good market entry point for long positions. If the bulls lack activity at about 1.1859, it would be better to cancel long positions until the swing low of 1.1828 is tested. However, it will be the right time to open long positions from there immediately during a drop bearing in mind a 15-20 pips correction intraday. The next large support is expected at about 1.1797.

What is needed to open short positions on EUR/USD

Today the sellers coped well and prevented EUR from fixation above 1.1885. This level is a headache for the buyers. As long as the pair is trading below this area, EUR will remain under growing pressure. Another important task for the bears in the second half of the day is to break and push the price below 1.1859. In the morning, the price undershot mere 5 pips until that level. Besides, the level serves as the lower border of the Head and shoulder pattern. If this area is broken, this will terminate the uptrend. If 1.1859 is tested upwards, this will create an excellent signal for short positions with the nearest target of a new swing low of 1.1828 where I recommend profit taking. If this area is also broken, EUR/USD will fall rapidly to near 1.1779. To make this happen, we need upbeat data on US unemployment claims.

Today the IMF is holding its summit, but it will hardly make a serious impact on EUR. Under the bullish scenario of EUR/USD during the US session, only a fake breakout at near 1.1885 will create a good entry point for short positions amid a downward correction. In case the sellers lack activity at this level, I would recommend opening short positions only at a bounce off the next resistance of 1.1913 or higher at about 1.1947, reckoning a downward 15-20 correction intraday.

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Let me remind you that in the COT report (Commitment of Traders) from March 30, both long and short positions underwent changes. The number of short positions increased notably, thus indicating that the bears are setting the tone in the market. A decline in the delta happened as a result of a small decrease in long positions and a sharp rise of short ones.

European countries are still keeping lockdowns this spring due to a new coronavirus strain and slow mass vaccination which kicked off in the winter. These are serious headwinds that deal a blow to the EU economy. Some experts suggest the pessimistic scenario that the EU GDP could contract in Q2 2021 as well. The red tape in the implementation of the EU rescue program is another cause of a feeble economic growth in the EU during the pandemic this year. For this reason, the market remains in the hands of risky assets sellers in the medium term. So, EUR/USD could carry on with a further downtrend. Investors expect the US to be the first to begin raising interest rates that adds to the US dollar's investment appeal. Once restrictions are lifted and the service sector gets back on track in the EU, this will set the stage for further improvement in economic prospects. On such conditions, EUR/USD will resume an uptrend.

According to the COT report, long non-commercial positions dropped to 194,764 from 195,500. At the same time, short non-commercial positions grew from 102,178 to 121,024. As a result, the overall non-commercial net positions again declined to 73,739 from 93,332 a week ago. EUR/USD closed the trading week lower at 1.1768 versus 1.1932 a week earlier.

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Signals of technical indicators

Moving averages

The pair is trading at the area of 30- and 50-period moving averages. It indicates an uncertain further direction.

Remark. The author is analyzing a 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

A breakout of the indicator's lower border to 1.1858 will escalate pressure on EUR. A breakout of the indicator's upper border will trigger a new upward wave.

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.
Miroslaw Bawulski,
Analytical expert of InstaForex
© 2007-2024
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