21.01.202115:31 Forex Analysis & Reviews: EUR/USD: trading plan for American session on January 21 (overview of morning trade). EUR bulls aim for 1.2174, but everything depends on Christine Lagarde

What is needed to open long positions on EUR/USD

In my morning review, I indicated the level of 1.2130 and recommended to trade, taking it into account. Let's look at the 5-minute chart and figure out market entry points. The chart clearly displays that the bears did not reveal special zeal when the euro was below 1.2130. Afterwards, the price retuned to this zone and tested it downwards. This price action enabled the buyers to enter the market, aiming to ensure a further recovery of the pair.

From the technical point, nothing has changed from the morning review. If Christine Lagarde presents a positive outlook for the EU economy in the second half of the trading day, this can encourage a further climb to the area of 1.2174 which the pair failed to reach yesterday. A breakout of this area will be possible only after weekly updates on the US labor market which has been in dire straits and a consumer confidence index for the Eurozone.

A test of 1.2174 downwards generates a good signal for opening long positions aiming to hit the high of 1.2220 where I recommend profit taking. If the bulls can do nothing after a speech by Christine Lagarde in the second half of the trading day and if the pair trades below 1.2130, it would be better not to rush to buy the pair. You would rather wait for a downward correction to the strong level of 1.2089 where there is the lower border of the upward channel. I would recommend opening long positions immediately at dips only after the low of 1.2055 is tested, bearing in mind an upward move of 20-25 pips intraday. A breakout in this area will revive the bear market.

What is needed to open short positions on EUR/USD

The euro sellers set the goal of regaining control over 1.2130 which they missed in the first half of the trading day today. A decline and a test of 1.2130 upwards as well as a breakout of moving averages which are passing in the area generate a great signal to open short positions. The sellers aim to enable a large downward correction to support of 1.2089. I expect a fierce fight for this support. If the bears prove their strength, a breakout and fixation below this level will create an extra point for opening short positions that will instantly push the euro to a one-month low of 1.2055 where I recommend profit taking. A breakout of this level will open the door to lows of 1.2026 and 1.1986. Under the bullish scenario for EUR/USD after a speech by Christine Lagarde, it would be better to refrain from selling the pair. I would advise you wait for a higher high of 1.2174 and open short positions from there on condition of a fake breakout. It is possible to sell EUR/USD of rallies from the high of 1.2220, bearing in mind a downward correction of 20-25 pips intraday.

Let me remind you that the COT report (Commitment of Traders) from January 12 logged a sharp increase in long positions and contraction of short ones. The buyers of risk assets still believe in the bullish trend, especially after a plunge of the euro at the beginning of the year. In fact, it invited new large market players to the market. Europe is pushing ahead with mass vaccination that attracts new buyers of the euro. Investors pin hopes on a large-scale stimulus package in the US worth $1.9 trillion. If the relief package is approved, it will contribute to protracted weakness of the US dollar. The euro's growth is capped by risks of extending lockdown measures through February in Germany and other EU countries. In the meantime, long non-commercial positions increased from 224,832 to 228,757 whereas short non-commercial positions contracted from 81,841 to 72,867. Amid a sharp drop of short positions, the overall non-commercial net positions grew to 155,980 from 143,902 a week ago.

Signals of technical indicators

Moving averages

The pair is trading at about 30- and 50-period moving averages. It indicates a further growth of EUR/USD in the short term.

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 the currency pair declines, the lower border at near 1.2095 will serve as support.

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.