Fundamental analysis

EUR/USD on October 27, 2022

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Hi, dear traders! On Wednesday, EUR/USD continue to rise and reached 1.0080 by the end of the day. This week, the European currency advanced by 200 pips, maintaining bullish momentum ahead of the ECB policy meeting. Its further performance will depend on the ECB’s decision, as well as the rhetoric of Christine Lagarde’s remarks several hours later. At this point, analyzing charts would be pointless, as traders will ignore such factors – the ECB meeting is much more important.

The European currency has been on the rise throughout the week, despite almost no events happening early on. On Monday, US and EU PMI indexes were released, and the euro did not rise significantly on that day. It appears that traders have already fully priced in a 0.75% interest rate increase. The ECB is unlikely to make a bigger hike right now, such as a 1.00% move. A 0.50% increase is also quite farfetched. Therefore, it can be said with certainty that traders have already reacted to the ECB’s decision.

Next is Christine Lagarde’s statement – she is expected to provide information on the EU regulator’s plans and further actions. Several months ago, Lagarde said that inflation would only begin to decline after 2-5 meetings, which meant ECB rate hikes. Today is the third policy meeting and the third rate hike in a row, but inflation in the EU keeps on rising. This means there could be at least two more interest rates increases in late 2022 and early 2023. However, they could be smaller than today’s move – 0.50% or even less. A slower pace of rate hikes is a negative factor for the euro in the current situation. EUR could decline today, and there could be no factors that would provide it strong support in the future.

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According to the H4 chart, the pair settled above the descending trend channel and continues to rise towards the retracement level of 127.2% (1.0173). This is a key moment of both this week and this month – the overall trend on the chart is now bullish. At this point, EURs upward movement is not strong enough to put an end to the rising USD. The euro is likely to move up, but ongoing events could jeopardize its advance and return bears into the market.

Commitments of Traders (COT) report:

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Last week, traders opened 6,567 Long positions and closed 4,084 Short positions, indicating that major players are slightly more bullish than before. Overall, traders are bullish on the euro, unlike the pound sterling. Net long positions now stand at 202,000 against 154,000 net short positions. However, the euro still struggles to advance. Over the past several weeks, EUR’s upward movement became more likely, but traders continue to favor USD over the European currency. At this point, the euro could likely fail to close above the key descending channel on the H4 chart. Therefore, a new decline could begin soon. Not even the bullish sentiment of traders can help the European currency increase.

US and EU economic calendar:

EU – ECB interest rate decision (12-15 UTC).

EU – ECB monetary policy statement (12-15 UTC).

US – Durable goods orders (12-30 UTC).

US – Q3 GDP data (12-30 UTC).

US – Initial jobless claims (12-30 UTC).

EU – Statement by ECB president Christine Lagarde (14-15 UTC).

There are many important events on the economic calendar in both the EU and the US today. Close attention should be paid to the US GDP data. These events and data releases will influence traders strongly today.

Outlook for EUR/USD:

Opening new short positions can be considered if the pair bounces off 1.0080 with 0.9963 and 0.9782 being targets. Earlier, traders were recommended to go long on EUR/USD if the pair closed above the trend channel on the H4 chart with 1.0173 being the target. These positions can be kept open. However, today’s events could change the sentiment of traders.

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


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