Bulls on the EUR/USD pair, after a multi-day buildup, nevertheless decided on another bullish breakthrough. The primary goal is the level of parity. In early October, traders were already trying to develop a corrective movement, but then the upward momentum faded around the 0.9990 mark. It is noteworthy that the last time the price of EUR/USD was above the target of 1.0000 was more than a month ago, on the 20th of September. Then the pair actually stuck in a wide range of 0.9660 - 1.0000. Will traders overcome this major price milestone this time? Indeed, in order to develop further upward movement, bulls need not only to step over the parity level, but also to gain a foothold above it. This requires an appropriate fundamental background.
First of all, let's figure it out - in fact, why did the EUR/USD bulls show such activity?
Let's start with macroeconomic statistics. The German IFO indicators were published in the morning, which all came out in the green zone "as if by choice". And although de facto indicators decreased relative to September values, the decline was minimal. In particular, the indicator for assessing the current situation from the IFO came out at around 94.1 points (in September - at around 94.5), while experts predicted a decline to 91 points. Commenting on the latest figures, the representative of the IFO Institute noted that export expectations in the German industry "slightly but unexpectedly improved." Although in general, the overall situation remains difficult - for example, every second company participating in the study announced that it plans to raise prices during the coming quarter. However, the euro reacted positively to the report, given its "green color".
But the dollar was under pressure from the US reports. The US consumer confidence index was released. After a two-month strong growth, the index fell to 102 points (against the forecast of a decline to 105 points) after rising to 108 points in September. This is the weakest result since June of this year. And we also have the manufacturing index of the Fed-Richmond. Despite the fact that this indicator is of a secondary nature, it put additional pressure on the greenback, as it collapsed to -10 points (against the forecast of a decline to -3 points). This is the lowest value of the index since June 2020.
In other words, the latest reports turned out to be on the euro's side.
In addition, the market has increased interest in risk. The S&P 500 and Nasdaq indices rose at the start of trading in the face of the corporate reporting season. Microsoft, Alphabet, General Motors, Twitter, Spotify, UBS AG, Novartis AG, Coca-Cola, and Visa will release their reports. A surge of optimism in this case may be short-term.
However, general interest in risky assets has increased not only due to news from Wall Street. China also made its contribution, which published key data on economic growth. It became known that China's GDP growth accelerated to 3.9% in the third quarter. The growth rate of the Chinese economy accelerated significantly, given the fact that in April-June this figure grew by only 0.4%. Amid such trends, interest in the safe dollar has declined.
But the euro has strengthened its position due to the "gas issue". The core European price of blue fuel fell this week to more than 70% below its record high in August. Gas prices in Europe are declining amid relatively warm weather and almost full storage facilities. For example, the total level of natural gas in underground storage facilities in Germany is already 97%. In addition, according to available information, in northwestern Europe, at least until mid-November, the air temperature will be significantly above the seasonal norm, and this fact will limit the level of gas withdrawal from storage facilities.
Thus, the current fundamental background contributes to the corrective growth of EUR/USD. At the same time, it is necessary to warn that at the moment the pair has approached a potentially dangerous level. The previous attempt to overcome the "bottom-up" parity level bogged down in the area of 0.9980-0.9990 marks. The bulls were then unable to develop the bullish attack, after which they conceded the initiative to the bears.
This time the situation may repeat itself. Note that the pair has been trying to reach the 1.0000 mark throughout the day, but bears come into play around 0.9980 and do not allow them to approach the parity level. This speaks of the riskiness of longs, despite the general fighting spirit of the EUR/USD bulls. If in the short term (within a day) the price does not overcome the 1.0000 mark, the bears will seize the initiative with a high degree of probability. In this case, we can talk about a guaranteed decrease in EUR/USD to 0.9800. At this price point, the middle line of the Bollinger Bands coincides with the Tenkan-sen and Kijun-sen lines.