Fundamental analysis

EUR/USD: plan for the European session on October 26. COT report. The euro returns to parity against the US dollar

Several excellent market entry signals were formed yesterday. Let’s take a look at the 5-minute chart and see what happened. I paid attention to the 0.9855 level in my morning forecast and advised making decisions on entering the market there. A downward movement and a false breakout at this level led to a buy signal, but the pair did not reach a major growth. The expected German IFO data kept the market in balance, so that the euro, by the time of writing, has recovered only 15 points. Very weak US consumer confidence came out in the afternoon, and along with another false break at 0.9855, we got a buy signal for the euro, which led to a sharp rise of more than 100 points.

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When to go long on EUR/USD:

It is obvious that weak US statistics are seriously putting pressure on the US dollar. At the same time, many investors are looking at risky assets that have fallen in price significantly, including the euro. Talk that the Federal Reserve will be forced to abandon its plans for a super-aggressive policy, or moderate them, is also putting pressure on the dollar. In addition, tomorrow we are waiting for the European Central Bank meeting, which will decide on a further increase in interest rates, which strengthens the euro’s appeal. Today’s data on the change in the aggregate M3 money supply in the euro area and the volume of lending to the private sector of the euro area is unlikely to have a negative impact on the euro, so I expect its further growth in the first half of the day.

In case of a decline, amid weak reports, forming a false breakout in the area of a new support level of 0.9948, formed at the end of the Asian session, will be an excellent reason to build up long positions with the prospect of the euro’s succeeding recovery along the trend towards the parity of 0.9995. We can talk about the bulls’ attempts to strengthen control over the market after surpassing this range and the test from the top down, which will significantly change the technical picture of the pair. However, it will be quite difficult to force traders to continue buying the euro before the ECB meeting – you never know what the central bank will think of for itself. A breakthrough of 0.9995 would hit speculative bear stops and form another buy signal with an opportunity to push up to the 1.0040 area, reinforcing the bullish trend seen since October 13th. An exit above 1.0040 will serve as a reason for growth to the area of 1.0084, where I recommend taking profits.

In case EUR/USD falls and the absence of traders at 0.9948, bulls will not lose control over the market, but I advise you not to rush to open long positions. The optimal decision to buy would be a false breakout near the lower border of the rising channel at 0.9899, where the moving averages are, playing on the bulls’ side. I advise you to buy EUR/USD immediately on a rebound only from 0.9855, or even lower – in the area of 0.9816, counting on an upward correction of 30-35 points within the day.

When to go short on EUR/USD:

The bears again suffered another defeat yesterday after receiving weak statistics on consumer confidence in the US, which began to decline rapidly along with the pace of economic growth. The primary task is to protect the parity, to which the pair will definitely recover in the near future. The optimal scenario for opening short positions would be forming a false breakout at the level of 0.9995, which will provide an excellent entry point, allowing a return to 0.9948, the level formed at the end of the Asian session. Consolidation below 0.9848, as well as a reverse upward test amid weak eurozone data, is a reason to sell EUR/USD in order to remove bullish stops and a larger fall to the 0.9899 area, where bears will again face serious problems. The farthest target will be the area of 0.9855, where I recommend taking profits.

If EUR/USD moves up during the European session, as well as the absence of bears at 0.9995, the demand for the pair will increase, which will lead to a more powerful upward correction. In this case, I advise you not to rush into selling: I recommend opening short positions only if a false breakout is formed at 1.0040. You can sell EUR/USD immediately on a rebound from the monthly high of 1.0084, or even higher – from 1.0118, counting on a downward correction of 30-35 points.

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COT report:

According to the Commitment of Traders (COT) report from October 18, the number of both long and short positions slumped. Demand for the US dollar is falling amid more and more signs of the economic recession caused by extremely aggressive monetary policy tightening conducted by the Federal Reserve. Last week, it became known that the housing market continued falling. This week, the US reported a significantly lower business activity in the services sector. This will hardly support the greenback since the demand for the euro is rapidly rising amid the ECB’s promises to continue its hawkish policy to curb surging inflation. Notably, in September, the eurozone inflation slackened and remained below 10.0%. The COT report unveiled that the number of long non-commercial positions increased by 6,567 to 202,703, while the number of short non-commercial positions decreased by 4,084 to 154,553. At the end of the week, the total non-commercial net position remained positive at 48,150 against 37,499 a week earlier. This indicates that investors are benefiting from the situation and continue to buy the cheap euro below parity. They are also accumulating long positions supposing that the crisis will end soon and the pair will recover in the long term. The weekly closing price rose to 0.9895 from 0.9757.

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Signals of indicators:

Moving averages

Trading is conducted above the 30 and 50-day moving averages, which indicates the bulls’ attempt to return to the market.

Note: The period and prices of moving averages are considered by the author on the H1 chart, which differs from the general definition of the classic daily moving averages on the daily chart.

Bollinger Bands

In case of growth, the upper border of the indicator in the area of 0.9999 will act as resistance. In case of a decline, the lower border of the indicator around 0.9899 will act as support.

Description of indicators

  • Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 50. It is marked in yellow on the chart.
  • Moving average (moving average, determines the current trend by smoothing out volatility and noise). Period 30. It is marked in green on the chart.
  • MACD indicator (Moving Average Convergence/Divergence — convergence/divergence of moving averages) Quick EMA period 12. Slow EMA period to 26. SMA period 9
  • Bollinger Bands (Bollinger Bands). Period 20
  • Non-commercial speculative traders, such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet certain requirements.
  • Long non-commercial positions represent the total long open position of non-commercial traders.
  • Short non-commercial positions represent the total short open position of non-commercial traders.
  • Total non-commercial net position is the difference between short and long positions of non-commercial traders.

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


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