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21.09.2022 02:01 PM
EUR/USD: trading plan for American session on September 21 (analysis of morning trades). EUR to reach yearly low

In the morning article, I turned your attention to the levels of 0.9947 and 0.9902 and recommended making decisions with this level in focus. Now, let's look at the 5-minute chart and try to figure out what actually happened. A breakout and an upward test of 0.9947 gave an excellent sell signal. The euro dropped by more than 40 pips to 0.9902. After that, bulls again entered the market, trying to push the price higher. Speculative traders rushed to lock in profits before the Fed meeting. As a result, a false breakout occurred and a buy signal appeared. The pair rose by more than 30 pips. In the afternoon, the technical outlook changed slightly.

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Conditions for opening long positions on EUR/USD:

The further trajectory of the pair will depend on the FOMC meeting results. I have mentioned many times that traders have already factored in a 0.75 basis point rate increase. This is why they are going to largely focus on the comments of Fed policymakers on future steps for monetary policy. Fed Chairman Jerome Powell hinted that the central bank may keep rates at a high level for a long time. If this scenario comes true, the pressure on the euro will escalate. it is recommended to open long positions only after a false breakout of the nearest support level of 0.9907. If so, there could be the formation of the lower border of a new upward channel. The euro may jump to 0.9952. A breakout and a downward test of this level will enable the euro to reach a high of 0.9996. Below this level, the moving averages are passing in negative territory. A breakout of this level will provide an additional buy signal with the prospects of a larger upward movement to 1.0040. However, it may take place only if Fed officials make dovish comments. A more distant target will be the 1.0084 level where I recommend locking in profits. If EUR/USD declines and bulls show no activity at 0.9907, the euro is likely to plunge to a yearly low of 0.9867. It is better to open long positions at this level also only after a false breakout. You can buy EUR/USD at a bounce from a low of 0.9819 or 0.9770, keeping in mind an upward intraday correction of 30-35 pips.

Conditions for opening short positions on EUR/USD:

Bears achieved their goal and pushed the price to the next support level. As long as trading is carried out below 0.9952, the euro is likely to keep dropping. It may hit the support level of 0.9907, which was formed in the morning. It is better to open short positions after a false breakout of the nearest resistance level of 0.9952. However, such a scenario is possible only if the US real estate market report is downbeat. A failure to consolidate at 0.9952, similar to the one I have analyzed above, will push the euro down to 0.9907. A breakout below this level as well as an upward test will generate an additional sell signal. It will force bulls to close Stop Loss orders. Therefore, the pair may tumble to a yearly low of 0.9867 where I recommend locking in profits. The price could sink lower if Powell makes hawkish remarks after the meeting. If so, the next support level will be located at 0.9819. If EUR/USD grows during the American session and bears show no energy at 0.9952, the pair may advance significantly. If this assumption is correct, it is better to postpone shirt positions to 0.9996. I advise opening short positions after a false breakout of this level. You can sell EUR/USD at a bounce from a high of 1.0040 or 1.0084, keeping in mind a downward intraday correction of 30-35 pips.

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COT report:

The COT report (Commitment of Traders) for September 13 logged a drop in short positions and a minor increase in long ones. Apparently, traders rushed to close positions at the current levels following the ECB meeting and a sharp key rate increase of 0.75%. They locked in profits even despite the approaching FOMC meeting. The Fed is widely excepted to raise the interest rate by at least 0.75%. However, there are rumors that the central bank could hike the benchmark rate by 100 basis points. If so, bears will take the upper hand. The euro is likely to tumble significantly versus the US dollar. Taking into account the inflation report for August, such a likelihood is extremely high. However, the European Central Bank is also no longer sitting on the sidelines. It sticks to aggressive tightening, narrowing the key rate gap with the Fed. It may help the euro in the long term. Besides, risk sentiment is likely to improve as well. The COT report revealed that the number of long non-commercial positions climbed by 2,501 to 207,778, while the number of short non-commercial positions declined by 22,011 to 219,615. At the end of the week, the total non-commercial net position remained negative but rose slightly to -11,832 from -36,349. It indicates the continuation of the upward correction and traders' attempt to find out the bottom. The weekly closing price advanced to 0.9980 against 0.9917.

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Signals of technical indicators

Moving averages

EUR/USD is trading below 30- and 50-period moving averages, indicating a further decline.

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

If EUR/USD moves down, the indicator's lower border at 0.9900 will serve as support. If EUR/USD climbs, the indicator's upper border at 1.0000 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.
Miroslaw Bawulski,
Analytical expert of InstaForex
© 2007-2024
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