The EUR/USD currency pair continued its overall upward correction on Friday, which had started several days earlier. We have been discussing all of last week that we expected a new, stronger wave of correction as the euro was falling too sharply and too quickly. However, Friday was not just an ordinary day favorable for technical correction. On Friday, the most important statistics in the United States were published, which could and should have triggered the strengthening of the American currency. Strictly speaking, it did trigger it, but only for half an hour, after which the upward movement resumed. Thus, traders responded to strong nonfarm payroll data, but this report did not affect the overall technical picture or market sentiment.
In our view, the market is currently in an ambiguous situation. On the one hand, the pair has been falling for over two months, so an upward correction is needed. On the other hand, as the correction begins, strong American statistics immediately support a new decline. On the third hand, the market is not eager to buy the euro, but buying the US dollar again is too much. We believe that the correction should continue for at least a few more days, especially since there will be very little important information this week. Accordingly, the market's correction sentiment should not be disrupted.
But there is another important factor: the Fibonacci level of 38.2% on the 24-hour TF. It is located at the price level of 1.0609 and was almost worked out on Friday. This level may prevent the pair from moving further up, and the main movement to the south may resume.
The fundamental background for the euro remains weak, and even for a small correction, bulls may not have enough patience and strength. If we hypothetically consider factors that could support the euro, nothing comes to mind. The past week could have been favorable for the euro, and it actually was, as four out of five days ended with the strengthening of the EU currency. However, how much did the euro appreciate in total? By 100 points? By 150 points? Obviously, the correction is still very weak. And why is it very weak? Because 80% of important macroeconomic statistics from across the ocean turned out to be in favor of the dollar. Therefore, the market formally corrected the pair, and this week it will desperately search for new reasons to buy the euro.
And there will be very few of those reasons. On Monday, Germany will release a report on industrial production. On Tuesday, nothing. On Wednesday, the consumer price index in Germany for September was the second estimate. On Thursday, nothing. On Friday, industrial production in the EU for August. And please tell me, what from this list is capable of triggering the strengthening of the euro? Or at least any market reaction? Therefore, the fate of the EU currency is still tied exclusively to "technicals." If the bulls manage to push the pair up a little further without the support of fundamentals and macroeconomics, then new signals for buying may appear, which will become the basis for new small purchases and a further slight strengthening of the euro. And there are obstacles above us—the Kijun-sen line and the Senkou Span B line (1.0613) on the 4-hour timeframe. Whether the bulls can overcome these levels will determine the further correction of the pair this week.
For now, we see only one thing: Monday has already started with a new decline. And this is somewhat logical, as the unemployment and labor market data on Friday turned out to be very good, and the American currency should not have fallen in the end.
The average volatility of the euro/dollar currency pair for the last 5 trading days as of October 9th is 82 points and is characterized as "average." Therefore, we expect movement between the levels of 1.0469 and 1.0633 on Monday. A reversal of the Heiken Ashi indicator back down will indicate a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.0498
S2 – 1.0376
S3 – 1.0254
Nearest resistance levels:
R1 – 1.0620
R2 – 1.0742
R3 – 1.0864
Trading recommendations:
The EUR/USD pair maintains a downward trend but has started a new phase of correction. Short positions can now be considered with targets at 1.0469 and 1.0376 if the price settles below the moving average. Long positions can be considered if the price is above the moving average line with targets at 1.0620 and 1.0633, but we do not expect a strong rise in the euro.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both are pointing in the same direction, it means the trend is currently strong.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and direction for trading.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which the pair will trade over the next day based on current volatility indicators.
CCI indicator - its entry into the oversold zone (below -250) or overbought zone (above +250) indicates a trend reversal in the opposite direction.