The EUR/USD currency pair attempted to correct itself once again on Friday, but volatility remained low. The price barely managed to reach the moving average. Therefore, the overall ascending correctional movement may persist as the last local minimum has not been breached. This week, the pair may form a new upward correction phase, but strong fundamental and macroeconomic factors can lead to any market movements. Thus, the downward trend may have already resumed and could continue this week.
As before, we believe there are no substantial reasons for the European currency to grow over the long term. Recent macroeconomic publications from both the European Union and the United States confirm this. Practically all reports from the European Union had, at best, a neutral character. Almost all reports from across the ocean had a positive tone. Therefore, in the last 2-3 weeks, the dollar had every chance to show a new strengthening, but the market decided to make a slight correction to the pair, as technical corrections should occur from time to time.
We also note that the pair may enter into consolidation. In this case, it will remain within a limited price range for an extended period, which is not ideal. Remember, we need a trend and good volatility. Strong trading signals and high profits come from such conditions. If there is no movement or the pair remains stagnant, it becomes challenging to achieve profits.
The euro may again find it difficult to find reasons for growth. Over the weekend, we already listed all the macroeconomic events awaiting us this week. In this article, let's take a closer look at them. In principle, even reports on ISM, non-farm payrolls, and unemployment can generate substantial price fluctuations. However, besides these publications, there will also be European inflation data and two central bank meetings. Don't underestimate the impact of the Bank of England's meeting on the euro as well, as it can influence the European currency.
What can we expect from European inflation? Forecasts for October are quite bold, with an expected slowdown to 3.2%. Even if the actual slowdown is less significant, it would still be a good result. In this case, inflation in the European Union will slow down more than in the United States, which we have consistently compared to Europe. Furthermore, the ECB may achieve this progress with a less "restrictive" monetary policy. While the European economy is in a weaker state compared to the United States, the quicker inflation approaches 2%, the sooner the ECB will begin to lower rates. This is negative for the euro, but the fact that inflation has decreased might offer some support.
On Tuesday, the GDP report for the third quarter will also be published. Like the previous four quarters, economic growth will be close to zero. The forecast is 0%. This is not a recession, but it's close to one. Theoretically, grounds for buying the euro may emerge, but it's unlikely the market will rush to buy the euro based on decreasing inflation and a zero GDP.
However, the Friday data on the state of the labor market and unemployment across the ocean could cause a stir in the market. It's worth noting that many expect the U.S. economy to slow down, decline, or enter a recession, but the labor market consistently shows excellent numbers month after month. Unemployment is still near its record lows, and GDP is growing against all expectations. Therefore, we believe that this week there is a greater chance of seeing a new strengthening of the U.S. dollar than the opposite.
The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 29th is 74 points and is characterized as "average." Thus, on Monday, we anticipate movement between the levels of 1.0490 and 1.0638. A reversal of the Heiken Ashi indicator upward may 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 has resumed its southward movement and has settled below the moving average. Therefore, new short positions can be considered now, with targets at 1.0498 and 1.0376 in case the Heiken Ashi indicator reverses downward. Long positions can be considered only after a price reversal above the moving average, with targets at 1.0638 and 1.0742.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both channels point in the same direction, it means the trend is currently strong.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted.
Murrey levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel within which the pair will trade in the next 24 hours, based on current volatility indicators.
CCI indicator - its entry into the oversold zone (below -250) or overbought zone (above +250) indicates an approaching trend reversal in the opposite direction.
