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Analysis of Wednesday trade:
EUR/USD on M30 chart
EUR/USD started another round of upward correction on Wednesday. At the moment, the descending trendline remains in place which indicates the continuation of the downtrend. Therefore, we recommend considering sales on the current time frame. During the day, only one sell signal was generated. The MACD indicator turned downwards in the middle of the day and the bulls also made a failed attempt to break through the 1.1746 level. Thus, at it was possible to open short positions at approximately 1.1729. We will analyze this moment in more detail on the 5-minute time frame. In short, traders should not have followed this signal because it was formed exactly at the time of the CPI data publication in the European Union. This report is considered quite important as we mentioned in yesterday's review. So the market's reaction was quite strong which affected the trajectory of the pair. However, within a few hours, the main trend of the day (up) resumed. No sell signals were generated during the day.
EUR/USD on M5 chart
Now let's take a look at the 5-minute time frame. During the day, two reports have been published in the EU and the US that deserve our attention. We have already mentioned the first one. This is inflation data for March in the European Union. In total, two inflation figures were published. Thus, headline inflation rose from 0.9% to 1.3% y/y which is quite good although forecasts predicted it to rise to 1.4% y/y. However, core inflation fell to 0.9% from 1.1% y/y. Now let's discuss why core inflation is important in this case. Core inflation does not take into account changes in energy and food prices. Energy resources, oil in particular, have recently risen in price in global markets. So, the rise in headline inflation was caused by a surge in oil prices rather than by market factors. Therefore, the second indicator is more important as it shows that inflation in less volatile categories of goods has slowed down. For your reference, the ECB is aiming for a 2% inflation rate in the long term. Thus, at the time of the data release, the European currency began to decline. This moment is marked with the first tick on the chart. The second tick marks the moment of the ADP report on changes in the number of employees in the US private sector. This report is also quite important. However, it was largely downplayed by the market as the price remained almost unchanged after its publication. Yet, on the 5-minute time frame, a buy signal was generated at the very beginning of the European trading session. The price consolidated above the level of 1.1711 and went up to 1.1746 which could bring 30 pips of profit to novice traders.
How to trade on Thursday:
On Thursday, we recommend trading downwards on the 30-minute time frame as the downtrend continues. The MACD indicator is already well above the zero level, so it can form strong sell signals. The rebounds from 1.1746 could not be followed today. A breakout of this level is also unclear. Thus, we are waiting for signals from MACD. Take Profit is set at a 30-40 pips. Stop Loss should be moved to breakeven point as soon as the price moves in the right direction by 15-20 pips. On the 5-minute time frame, one can clearly see the level of 1.1760, which is the daily high, and the level of 1.1746. In case of a rebound or a breakout of these levels, it will be possible to open positions. The signal should be clear. If the signal is weak, then it is better not to enter the market. Tomorrow, indexes of business activity in the manufacturing sectors will published in the EU and the US. The data may cause a reaction in the market, but we believe that this will happen only in case of a great difference between the actual figures and the forecast. The same is true for the initial jobless claims in the US.
On the chart
Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trendlines that display the current trend and show in which direction it is better to trade now.
The MACD indicator (14, 22, and 3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend patterns (channels and trendlines).
Important announcements and economic reports that you can always find on the economic calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommend trading as carefully as possible or exit the market in order to avoid sharp price fluctuations.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
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