Fundamental analysis

EUR/USD: plan for the European session on October 27. COT report. Euro consolidates above parity ahead of ECB meeting

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 1.0040 level in my morning forecast and advised making decisions on entering the market there. A sharp breakdown of the parity took place without a reverse update from top to bottom, which did not make it possible to enter the market with long positions. However, rather good entry points for selling were obtained at the price of 1.0040, which led to a downward correction of the pair by more than 35 points. In the afternoon, a correction and false breakout at 0.9995 in such a bull market resulted in a great entry point for longs in continuation of the pair’s growth, which resulted in a move up more than 90 pips to the 1.0084 area.


When to go long on EUR/USD:

Another weak US statistics led to pressure on the US dollar, which lost more than 100 points against the euro in just one session. More importantly, bears lost control of parity, allowing buyers of risky assets to seize the initiative in earnest. The European Central Bank’s decision on interest rates will be announced today. As a result of the meeting, the central bank will most likely raise them immediately by 0.75% and announce further super-aggressive policy. This will give bulls on the euro confidence, which can be used by big players, which will allow them to take profits after a three-day bullish rally. So don’t be surprised if the euro tugs higher after the ECB press conference, only to end up with a big sell-off by the end of the day.

In case the pair falls during the European session amid weak report on the leading index of the consumer climate in Germany, forming a false breakout in the area of the new support level of 1.0045, formed at the end of yesterday, will be an excellent reason to increase long positions with the prospect of further recovery of the euro along the trend towards 1.0090. We can talk about new attempts by the bulls to strengthen control over the market after the breakout of this range and the test from the bottom down. The ECB can force traders to continue buying the euro by its decision to continue raising interest rates in the near future, which we will learn during a press conference. A breakthrough of 1.0090 would hit bearish stops and create another buy signal with the possibility of a push higher to the 1.0136 area, strengthening the bullish trend. An exit above 1.0136 will serve as a reason for growth to the area of 1.0182, where I recommend taking profits.

If the EUR/USD declines and there are no bulls at 1.0045, nothing bad will happen and the bulls are unlikely to lose control of the market. In this case, the best decision to buy would be a false breakout in the parity area of 0.9998, where the moving averages are, playing on the bulls’ side. I advise you to buy EUR/USD immediately on a rebound only from 0.9948, or even lower – in the area of 0.9899, 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 after weak statistics on the US real estate market, which, although it declined less than economists’ forecasts, the fact remains that the recession in the economy continues to come. The primary task for today is to protect the new resistance at 1.0090, formed on the basis of the Asian session. The optimal scenario for opening shorts would be forming a false breakout at this level, which will provide an excellent entry point, allowing a return to 1.0045. Consolidation below 1.0045, as well as a reverse test from the bottom up amid statements by the ECB that it suddenly began to seriously worry about the pace of economic growth – a reason to sell EUR/USD in order to remove bullish stops and a larger fall to the 0.9998 area, where bears once again face serious problems. The farthest target will be the area of 0.9948, where I recommend taking profits.

If EUR/USD moves up during the European session, as well as the absence of bears at 1.0090, the demand for the pair will increase, which will lead to the continuation of the upward trend. In this case, I advise you not to rush into selling: I recommend opening short positions only if a false breakout is formed at 1.0136. You can sell EUR/USD immediately for a rebound from the monthly high of 1.0182, or even higher – from 1.0218, counting on a downward correction of 30-35 points.


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.


Signals of indicators:

Moving averages

Trading is above the 30 and 50-day moving averages, which indicates the euro’s succeeding growth.

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 1.0120 will act as resistance. In case of a decline, the lower border of the indicator around 0.9998 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.

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