Long-term perspective.
The EUR/USD currency pair has lost about 30 points during the current week. Thus, after an unsuccessful attempt to overcome the critical line, the price remains lower and near its 20-year low. We have already said that strong trends usually end with a sharp departure in the opposite direction. What do we see in the euro currency now? It continues to trade in the same area as it has been doing lately. Thus, from a technical point of view, there is no reason to expect the end of the long-term global trend yet. There were practically no really important fundamental events this week. The only things we can note are several speeches by representatives of the ECB and the Fed, who assured the markets that they would continue to aggressively raise key rates. However, the European currency has not been helped by the ECB's two past rate hikes, so all subsequent ones may also not provide any support. The Fed's monetary policy is still a priority for traders, and at least 2-3 more rate hikes are expected in the US. And taking into account the latest inflation report, which showed only a minimal slowdown in September, we believe that the issue with the fourth consecutive increase of 0.75% has been resolved. This is again very good news for the dollar. Paired with geopolitics, which continues to escalate, the dollar still enjoys much more confidence than the euro or the pound. The same applies to the American economy and American treasuries. Who will buy European bonds when the entire bloc is a couple of hundred kilometers from the war zone? Who will buy European bonds if Europe is on the verge of an energy crisis? Of course, no one in the European Union will freeze this winter, but it will be necessary to save gas and energy very much, which can negatively affect industrial production, for example.
COT analysis.
COT reports on the euro currency in 2022 can be entered in the textbook as an example. For half of the year, they showed a frank "bullish" mood of professional players, but at the same time, the European currency was steadily falling. Then, for several months, they showed a "bearish" mood, and the euro currency also steadily fell. Now the net position of non-profit traders is bullish again, and the euro continues to fall. This is happening, as we have already said, because the demand for the US dollar remains very high against the backdrop of a difficult geopolitical situation in the world. Therefore, even if the demand for the euro currency is growing, the high demand for the dollar does not allow the euro currency itself to grow. During the reporting week, the number of buy-contracts from the non-commercial group decreased by 3.2 thousand, and the number of shorts increased by 2.9 thousand. Accordingly, the net position decreased by about 6.1 thousand contracts. This fact does not matter much since the euro remains "at the bottom" anyway. Professional traders still prefer the euro to the dollar at this time. The number of buy contracts is 38 thousand higher than the number of sell contracts for non-commercial traders, but the European currency cannot extract any dividends from this. Thus, the net position of the "non-commercial" group can continue to grow further, but it does not change anything. Even if you pay attention to the total number of buy and sell positions, their values are approximately the same, but the euro still falls. Thus, we need to wait for changes in the geopolitical and/or fundamental background for something to change in the foreign exchange market.
Analysis of fundamental events.
Nothing was interesting in the European Union this week except a report on industrial production and several speeches by Christine Lagarde. Lagarde said that the rate will continue to rise, as inflation remains at a high value and there is no other way. At the expense of the energy crisis, the panic subsides a little, since the European Union has managed to fill its storage by 90% or more. However, many experts say that maximum occupancy does not mean that there will be enough gas for the whole winter. Therefore, EU politicians are currently engaged in negotiations with other countries of the world on gas supplies. We will find out what comes out of this in the near future. In addition, we note that the official version of who is behind the explosions on the Nord Stream has not been presented. All parties to the conflict continue to blame each other for what happened. Moscow is ready to send gas to Europe via the surviving branch of the Nord Stream-2, but this pipeline is not certified, and Germany said that it would never be launched.
Trading plan for the week of October 17 – 21:
1) During the 24-hour timeframe, the pair resumed their movement to the south. Almost all factors still speak in favor of the long-term growth of the US dollar. The price is located below the Ichimoku cloud and the critical line, so purchases are not relevant at this time. To do this, you need to wait at least for consolidation above the Senkou Span B line and only then consider long positions.
2) As for the sales of the euro/dollar pair, they are still more relevant now. The price is again below the critical line, so we expect a resumption of the fall with a target below the level of 0.9582 (161.8% Fibonacci). In the future, if the fundamental background for the euro currency does not improve, and geopolitics continues to deteriorate, the euro currency may fall even lower.
Explanations of the illustrations:
Price levels of support and resistance (resistance/support), Fibonacci levels – target levels when opening purchases or sales. Take Profit levels can be placed near them.
Ichimoku indicators(standard settings), Bollinger Bands(standard settings), MACD(5, 34, 5).
Indicator 1 on the COT charts is the net position size of each category of traders.
Indicator 2 on the COT charts is the net position size for the "Non-commercial" group.
