On Friday, the EUR/USD currency pair began a new round of downward movement, during which it again consolidated below the moving average line. Thus, the price did not spend even one day above the moving average, and the trend is again downward. Both linear regression channels are still directed downwards, so almost all indicators now support a new fall in the European currency. Also, recall that on the 24-hour TF, the price continues to be below the critical line. Therefore, according to all indicators, the European currency should continue to slide down. Of course, sooner or later, the downward trend will be completed. Still, we are asking one very simple question for the umpteenth time: what has changed over the last week (month/day) in the fundamental/geopolitical background so that now we can count not on an ordinary pullback up by 200-400 points, but a new upward trend? Answer: nothing. Consequently, the European currency is still at risk.
Moreover, after several statements by Fed representatives last week, they assured us that the increase in the Fed's key rate would continue for some time, and then a high rate would remain for quite a long time. Recall that, at the beginning of this year, statements were repeatedly made that the rate would rise as much as possible to start slowing inflation (at that time, it was a 3.5% rate). And then (next year), a rate cut would begin so the economy could avoid a shock and recession. As you can see, there is no question of any rate reduction in 2023. Inflation is declining so slowly at a 3% rate that it is completely unclear at what level it will have to be raised. Is it worth saying again that any Fed rate hike is just fine for the dollar? The market could already consider future rate increases (planned at the beginning of the year), but did it consider the rate increase to 4.5%? Moreover, the European currency remains 200 points from its 20-year low. If the pound has made at least one serious upward leap, then the euro has not.
Inflation in the European Union will be at least 10% in September.
By and large, there will be only one more or less significant publication in the new week in the European Union—this is the inflation report for September. However, this report cannot be called "important" upon closer examination. First of all, what does European inflation change now? The ECB, just like the Fed, has set a course for an aggressive rate hike, so until inflation shows a serious slowdown, the regulator will not go off this course. Second, the reaction to European inflation has always been weaker than American inflation. A vivid example of this was last week when both major pairs "flew" in different directions after the publication of the CPI in the USA. Third, this is only the second final inflation value for September; the market is already aware that the indicator has risen to 10%.
What else will be interesting in the European Union? Speeches by Luis de Guindos, Isabel Schnabel, and Christine Lagarde. Moreover, the speech of the head of the ECB is scheduled for Saturday, so it will not be able to have any impact on the euro currency during the week. Well, de Guindos and Schnabel are likely to remain true to their previous rhetoric, which implies a further tightening of monetary policy. Thus, nothing will be interesting regarding macroeconomics or foundations in the EU this week.
But, unfortunately for the euro currency, there is also geopolitics. As several experts have warned, October will be very "hot." In November, the G-20 summit is due to take place, in which both Vladimir Putin and Vladimir Zelensky can participate. So far, no one understands how this can restore peace in Europe since Moscow and Kyiv have officially stated that they will not negotiate with each other. However, in any case, this event is a landmark, and maybe something will be decided on it.
The average volatility of the euro/dollar currency pair over the last five trading days as of October 17 is 103 points and is characterized as "high." Thus, on Monday, we expect the pair to move between 0.9618 and 0.9825. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward correction.
Nearest support levels:
S1 – 0.9644
S2 – 0.9521
Nearest resistance levels:
R1 – 0.9766
R2 – 0.9888
R3 – 1.0010
Trading Recommendations:
The EUR/USD pair made an upward leap, which ended very quickly. Thus, now it is necessary to stay in short positions with targets of 0.9644 and 0.9618 until the Heiken Ashi indicator turns up. Purchases will become relevant again no earlier than fixing the price above the moving average with goals of 0.9825 and 0.9888.
Explanations of the illustrations:
Linear regression channels – help determine the current trend. The trend is strong if both are directed in the same direction.
The moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.
The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.