10.02.202113:44 Forex Analysis & Reviews: EUR/USD: trading plan for American session on February 10 (overview of morning trade). EUR bulls fail to defend 1.2129 and retreat. Downward correction looming.

What is needed to open long positions on EUR/USD

In my morning review, I turned your attention to the level of 1.2129 and advised you to figure it out for trading. Now let's look at a 5-minute chart and discuss what has actually happened. The chart mirrors that following inflation data from Germany EUR buyers made an effort to break resistance of 1.2129. However, after it had been tested, speculators did not find support from large market players. As a result, the currency pair retraced to the level below 1.2129 where it is trading at the moment of writing this article. Another thing, I would recommend paying attention to this level testing upwards that generates a sell signal for EUR/USD after a fake breakout in the morning.

Despite the price action which happed in the morning, the technical picture has not changed a lot, except that EUR sellers are holding the upper hand in the market meanwhile. The buyers again have to ensure that the price breaks out and fixes above 1.2129. Once this level is tested downwards (like it was in the morning today), this will create an excellent signal to open long positions. Here is a tip from me. Before buying the pair, make sure that large buyers are present in the market. To check this, EUR/USD should hold firmly above 1.2129 as long as possible. Under this scenario, the bullish target will be a new local low at near 1.2175 where I recommend profit taking.

EUR/USD will be able to grow above this level in the second half of the day following a CPI report from the US. Weak inflation data will reinforce EUR that will push the price up to a new high at about 1.2120. Alternatively, if EUR declines in the second half of the day, the buyers will focus on defending support at 1.2087 where moving averages are passing, thus playing in favor of the bulls. A fake breakout there will generate a good market entry point for long positions with prospects of a further upward correction. In case the buyers reveal subdued activity at this level, it would be better to postpone opening long positions until the area of 1.2047 is tested. From there, it would be a good idea to buy EUR at a price dip, bearing in mind an upward 20-25 pips correction intraday.

What is needed to open short positions on EUR/USD

The sellers ensured a fake breakout at about resistance of 1.2129 that enabled a signal to open short positions on EUR/USD. While the pair is trading below the level of 1.2129, we can reckon a decline for a short term with a retracement back to 1.2087 which was support in the morning. A direction of a breakout will determine a further trajectory of EUR/USD. If this level is breached and tested upwards, this move will generate a new market entry point for short positions that will push the price down to a low of 1.2047 where I recommend profit taking. A deeper target is seen at 1.2003. If US CPI turns out to be worse than expected, the bulls will be able to regain control over 1.2129. In this case it would be better to cancel short positions and not to trade against the trend. The right time to sell the pair will be a test of a new high of 1.2175 from where we will be able to sell EUR/USD at a bounce, bearing in mind a decline of 20-25 pips intraday. The next strong resistance is expected at near 1.2220.

Now let me remind you that the COT report (Commitment of Traders) from February 2 logged a sharp increase of short positions and contraction of long ones. This mirrors a downward correction in late January and early February this year. Weak fundamental data on the eurozone's economy and a downgraded economic outlook presented the ECB last week subdue EUR's bullish momentum. Another headwind to EUR growth is the fact that mass vaccination in the EU is being carried out slower than expected. Such obstacles could entail serious recession in the euro area at the beginning of 2021. However, this will hardly hamper medium-term prospects of EUR/USD recovery. Hence, every notable downward correction of the pair will boost demand for EUR. To sum up, the lower EUR dips, more attractive it gets for investors.

The likelihood of lifting the lockdown adds up to market optimism. The fresh COT report indicates that long non-commercial positions fell from 238,099 to 216,887. At the same time, short non-commercial positions climbed from 72,755 to 79,884. Due to a sharp decrease in long positions, the overall non-commercial net positions dropped to 137,003 from 165,344 a week earlier. The EUR/USD pair closed that week at 1.2067 against 1.2142 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 advance of EUR 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

A breakout of the indicator's lower border at near 1.2100 will step up pressure on EUR.

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.