Fundamental analysis

Analysis of the trading week of October 24-28 for the EUR/USD pair. COT report. The euro currency takes another strained

Long-term perspective.

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The EUR/USD currency pair gained 90 points during the current week. The week was going pretty well for the European currency, if not for the ECB meeting. As strange as it may sound, the ECB meeting brought the euro currency down, preventing it from showing more convincing growth. However, this is a double-edged sword. In the first half of the week, the European currency showed growth that was not associated with any fundamental or macroeconomic event. The euro currency was growing. However, when the results of the ECB meeting became known, it began to fall, although the results themselves can be interpreted as “hawkish.” First, the regulator raised the rate by 0.75%. Second, Christine Lagarde said that the tightening of monetary policy would continue, and a 2% inflation rate is the main goal of the ECB. Nevertheless, the market worked out these decisions in advance (at the beginning of the week), so we already saw a drop in the second half of the week.

As a result, the pair grew this week to the upper line of the Ichimoku cloud of the Senkou Span B line, which, we recall, is a very important line. But I could not overcome it once again. Therefore, from a technical point of view, the euro has made a good step forward, but at the same time, the long-term downtrend persists and can be resumed at any time. The pair has so far adjusted by 560 points from its 20-year lows. This is, of course, more than what was adjusted earlier, but it is still not enough to end the downward trend. Thus, the conclusion is simple: if traders manage to push through Senkou Span B, then it will be possible to count on a new uptrend. But it should be remembered that the “foundation” and geopolitics can continue to have a destructive impact on risky currencies, particularly the euro. Moreover, the Fed will hold a meeting next week, at which the rate is also likely to be increased by 100%.

COT analysis.

COT reports on the euro currency in 2022 are becoming more and more interesting. For half the year, they showed a frank “bullish” mood of professional players, but at the same time, the European currency was steadily falling. Then they showed a “bearish” mood for several months, and the euro currency also steadily fell. The net position of non-profit traders is bullish again and is strengthening, and the euro has barely moved away from its 20-year lows by 500 points. 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. 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 increased by 24 thousand, and the number of shorts decreased by 2.7 thousand. Accordingly, the net position increased by about 26.7 thousand contracts. This fact does not matter much since the euro remains “at the bottom” anyway. Professional traders still prefer the dollar to the euro currency at this time. The number of buy contracts is 75 thousand higher than the number of sell contracts for non-commercial traders, but the European currency cannot extract special dividends from this. Thus, the net position of the “non-commercial” group can continue to grow, but it does not change anything. If you look at the general indicators of open longs and shorts for all categories of traders, then sales are 19 thousand more (609k vs. 590k).

Analysis of fundamental events.

Apart from the ECB meeting and Christine Lagarde’s speech this week in the European Union, there is nothing special to highlight. On Monday, business activity indices in services and manufacturing were published, which showed another decline, which should not surprise anyone because even the head of the ECB said that business activity would fall and economic growth would slow down. This is a consequence of tightening monetary policy, the geopolitical conflict in Ukraine, and disrupted logistics chains due to the pandemic. Thus, no one doubts that the economic situation in the Eurozone will continue to deteriorate. At the same time, not everything is good in the USA, but in our opinion, things are not so bad there. For example, GDP in the third quarter showed a steady growth of 2.6% q/q. The recession is also coming to the American economy, but for some reason, you are less worried about it than the European one.

Trading plan for the week of October 31 – November 4:

1) In the 24-hour timeframe, the pair rose to the Senkou Span B line, but to continue growing, this line needs to be overcome. In this case, we will seriously consider forming a new upward trend and recommend small purchases of the pair. It should be remembered that the fundamental and geopolitical backgrounds remain not in favor of the euro currency.

2) As for the sales of the euro/dollar pair, they have now become temporarily irrelevant since the price has overcome the critical line and increased to Senkou Span B. Thus, a rebound from Senkou Span B will mean a possible resumption of the downward trend. Fixing below the critical line will mean the resumption of the downtrend. A new escalation of the Ukraine conflict will strengthen traders’ desire to buy the dollar. We believe it is still too early to speak confidently about the end of the downtrend that has been forming for two years.

Explanations of the illustrations:

Price levels of support and resistance (resistance/support), Fibonacci levels – targets 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.

The material has been provided by InstaForex Company – www.instaforex.com


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