The EUR/USD currency pair showed quite high volatility on Friday and, by the end of the day, began a new round of upward movement, consolidating above the moving average line. In principle, over the past week, the price has often changed the direction of movement and overcome the moving. The movement has slipped to consolidation around the 98th level, and it is still unclear how long traders intend to keep the pair around it. From our point of view, Friday's growth of the euro currency was not due to any important events. Nevertheless, the pound and the euro showed synchronous growth. Much more important now are the previous movements of the pair. Recall that the quotes fell to their 20-year lows a few weeks ago, once again updating them. After that, an ordinary correction of 450 points followed, and the movement "died." The flat, of course, has not started, but the pair can neither resume growth nor resume a long-term downward trend. The movement is quite illogical and unpredictable.
All because the euro currency had no reason and no grounds for strong growth, which it does not. Traders have fallen into a trap since few are willing to sell the euro at current levels, but there is simply no reason to buy. Thus, for some time, the pair can trade quite "torn" or in "swing" mode. There has been practically no news concerning geopolitics over the past week, but this does not mean that the geopolitical conflict in Ukraine is de-escalating or is moving into a sluggish stage. Rather, the opposite. However, there is also no significant escalation, so the euro is being held back from a new fall.
As strange as it may sound, the euro may have nowhere to fall further. What other factors can negatively affect the euro currency? All possible EU sanctions against Russia have already been introduced, and nothing more is to be introduced. The consequences of these sanctions, which work both ways, are obvious and appreciated by market participants. The energy crisis continues to loom over the eurozone. Still, at the same time, the European Commission agreed to replace gas and oil supplies, which would compensate for up to 60–70% of supplies from Russia that are no longer available. Thus, there may not be a serious crisis yet. The ECB keeps raising rates, but the Fed keeps raising rates. The gap does not widen between them, so the worst, we can say, is already over. It is unlikely that the euro will always fall while the Fed rate is above the ECB rate.
The ECB does not care about the fate of the euro currency.
This week's key event will be the ECB meeting. There has been a lot of talk lately regarding the size of the rate increase. Traders agree that it is either by 0.5% or 0.75%. The majority believed that by 0.75%. From our point of view, this is the only right option for the European regulator since inflation in the European Union continues to grow, and a lower rate of increase does not make sense. The aggressive approach should be mitigated when the consumer price index begins slowing down. And that's not there yet. Therefore, the ECB is likely to raise the rate by 0.75%, which is favorable for the euro. However, even in this scenario, we still do not expect serious growth in the eurozone. It should be remembered that the ECB at the last meeting had already raised the rate by 0.75%, which did not help the euro in any way in global terms.
Apart from the ECB meeting, traders will have almost nothing to turn their attention to this week if we talk only about the EU. Today, on Monday, there will be published indices of business activity in the service and manufacturing sectors (as well as composite). All three indices are currently located below the key level of 50.0 and are unlikely to start growing if the economic condition of the European Union does not improve. Moreover, even if a recession can be avoided (which few believe now), there will still be a certain recession. Consequently, business activity has no reason to grow. However, these reports are secondary, and if there is no serious decline or growth, we do not expect a strong market reaction to them. Generally, the euro currency may continue to trade with a minimal upward bias this week. We will likely see more frequent corrections, pullbacks, or "swings."
The average volatility of the euro/dollar currency pair over the last five trading days as of October 24 is 114 points and is characterized as "high." Thus, on Monday, we expect the pair to move between the 0.9749 and 0.9976 levels. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 0.9766
S2 – 0.9644
S3 – 0.9521
Nearest resistance levels:
R1 – 0.9888
R2 – 1.0010
R3 – 1.0132
Trading Recommendations:
The EUR/USD pair continues to be near the moving average. Thus, it would be best if you stayed in long positions with targets of 0.9888 and 0.9976 until the Heiken Ashi indicator turns down. Sales will become relevant again no earlier than fixing the price below the moving average with a target of 0.9644. At this time, the probability of a "swing" is high.
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.
