Fundamental analysis

EUR/USD: plan for the European session on October 28. COT report. The ECB raised rates, but decided not to experiment further

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 1.0045 level in my morning forecast and advised making decisions on entering the market there. The decline and breakthrough of this range with a reverse test from the bottom up – all this led to an excellent entry point for selling the euro, however, the first downward movement was about 13 points. Closer to the middle of the day, there was another false breakout at 1.0045, which resulted in a sell signal and the pair fell by more than 50 points. The bulls succeeded in protecting the parity, however, the upward movement from the entry point totaled about 15 points. In the afternoon, another defense of 1.0045 and strong US GDP data led to a sell signal and EUR/USD sell-off by more than 70 pips.

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When to go long on EUR/USD:

The European Central Bank’s actions were more calm than economists predicted, which did not allow the euro to continue its growth against the US dollar. The interest rate hike went as expected, which is not the case for US GDP data, which beat economists’ forecasts. The economy gained enough in the 3rd quarter and grew by 2.6%, interrupting two consecutive negative quarters. This was the reason why bulls on risky assets changed their mind, as this kind of data retains the opportunity for the Federal Reserve to act more aggressively. For the same reason, I do not recommend rushing to buy euros today.

In case the pair falls during the European session amid weak reports on inflation in Germany and GDP growth rates, forming a false breakout in the support area of 0.9948, and as you understand, we have already missed the parity, will be an excellent reason to increase long positions with the prospect of the euro’s succeeding recovery on a trend to 1.0000. We can talk about the bulls’ attempts to strengthen control over the market after surpassing this range and the test from the bottom down. It’s hard to say what can make traders buy euros further today – perhaps it will be strong fundamental statistics on Germany, and possibly weak data on American spending, scheduled for the afternoon. A breakthrough of 1.0000 would hit bearish stops and form an additional buy signal with the possibility of a push higher to the 1.0042 area, strengthening the bullish trend. An exit above 1.0042 will serve as a reason for growth to the area of the weekly high of 1.0090, where I recommend taking profits.

In case EUR/USD falls and there are no bulls at 0.9948, the pressure on the euro will seriously increase, leading to another big drop. In this case, the best decision to buy would be a false breakout near 0.9899. 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 have made a serious step forward and regained control over the parity, for which the main struggle will clearly unfold today. The primary task is to protect the resistance of 1.0000, just above which the moving averages go, playing on the bears’ side. The optimal scenario for opening short positions would be forming a false breakout at this level if we receive obscure statistics on Germany and France, which is expected to provide an excellent entry point, allowing a return to 0.9948. Consolidation below this range, as well as a reverse test from the bottom up amid good statistics for the US, will be a reason to sell EUR/USD in order to remove bullish stops and a larger fall to the 0.9899 area, where bears will face serious problems again. The farthest target will be the area of 0.9855, where I recommend taking profits.

If EUR/USD moves up during the European session, and there are no bears at 1.0000, 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 1.0042. You can sell EUR/USD immediately for a rebound from the monthly high of 1.0090, or even higher – from 1.0136, 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 below the 30 and 50-day moving averages, which indicates that pressure on the pair remains.

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 1.0020 will act as resistance. In case of a decline, the lower border of the indicator around 0.9948 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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