Fundamental analysis

EUR/USD: trading plan for North American session on October 27, 2022. Overview of morning trading. EUR sinks ahead of ECB

In the morning, I focused on the level of 1.0045 and considered entering the market at this level. Let’s take a look at the M5 chart to get a picture of what happened. A fall and a false breakout through this range produced a sell entry point. The pair went down by 13 pips and the movement stopped ahead of the ECB meeting.


When to go long on EUR/USD:

We’ve discussed the ECB’s decision in detail earlier. Anyway, this is not the only important event today. Q3 GDP and weekly jobless claims data in the US may trigger market jitters as well. Of course, the jobless claims results will be of little importance, as the figures are published weekly. Therefore, the market will focus on economic activity in the US in the third quarter. Should the data come disappointing and the ECB decide to stay aggressive, the euro would skyrocket well above parity with the greenback. Otherwise, the pressure on the euro would increase. Therefore, the bulls should act when EUR/USD goes down and a false breakout through the nearest support level of 0.9998 occurs. A buy signal would be generated, and the price would extend the uptrend and retest 1.0045 resistance. A breakout and a retest of this range from top to bottom amid the release of disappointing macro results in the US would allow the quote to reach a monthly high of 1.0090, with the target at 1.0136. The most distant target would be seen at 1.0182, where it would be wiser to lock in profit. If EUR/USD goes down during the North American session when there is no bullish activity at 0.9998, buyers might start locking in profits, especially if ECB President Lagarde’s statement surprises them. In such a case, a false breakout through 0.9948 support would produce a nice buy entry point. So, long positions on EUR/USD could be considered at 0.9899 support or the 0.9855 low on a rebound, allowing a bullish correction of 30-35 pips intraday.

When to go short on EUR/USD:

The bears are trying to regain control over the market, although it still seems to be just a technical correction ahead of important events rather than a real downtrend. The pair is likely to feel pressure for as long as it trades below 1.0045. This could trigger a sell-off in the euro. Today, the bears should attempt to take the parity level under their control. Therefore, it would be wiser to consider selling the instrument after a false breakout through the nearest resistance level of 1.0045. If the quote fails to consolidate at 1.0045 after a row of macro releases, the euro would fall to 0.9998. A breakout and consolidation below this range, as well as a bottom-top retest, would give an additional sell signal. This would also trigger a row of bullish stop orders, and the euro would go down to 0.9948, where it would be wiser to lock in profit. The price might leave the range after the release of upbeat data in the US only. Should EUR/USD show growth during the North American session when there is no bearish activity at 1.0045, the pair would soar again. In such a case, short positions could be considered at 1.0090 after a false breakout. Short positions on EUR/USD could also be opened at the 1.0136 high or even at 1.0182 on a bounce, allowing a bearish correction of 30-35 pips.


Commitments of Traders:

The COT report for October 18 logged a sharp decrease in short positions and an increase in long ones. Obviously, demand for the greenback is not as high as it used to be. The American economy is slowly but steadily sliding into a recession due to the ultra-aggressive monetary policy of the Federal Reserve. Moreover, the regulator is expected to stay hawkish further on. Last week, it became evident that the contraction in the housing market continued. This week, we saw a decline in business activity in the manufacturing and services sectors. Therefore, the US dollar now has to deal with growing demand for the euro, which is strengthening, driven by promises of the European Central Bank to continue aggressive rate hikes to cool down inflation. In September, consumer price growth slowed and remained below 10.0%. According to the COT report, long non-commercial positions rose by 6,567 to 202,703, while short non-commercial positions fell by 4,084 to 154,553. In a week, the non-commercial net position rose to 48,150 from 37,499 a week earlier. This indicates that investors are now taking advantage of the situation and buying the cheap euro below parity. In addition, they are now accumulating long positions, hoping for the end of the crisis and the pair’s long-term recovery. The weekly closing price grew to 0.9895 versus 0.9757.


Indicator signals:

Moving averages

Trading is carried out in the range of the 30-day and 50-day moving averages, signaling a stabilization in the market ahead of important events.

Note: The period and prices of moving averages are viewed by the author on the hourly chart and differ from the general definition of classic daily moving averages on the daily chart.

Bollinger Bands

In case of a fall, support is seen at around 1.0045, in line with the lower band.

Indicator description:

  • Moving average (MA) determines the current trend by smoothing volatility and noise. Period 50. Colored yellow on the chart.
  • Moving average (MA) determines the current trend by smoothing volatility and noise. Period 30. Colored green on the chart.
  • Moving Average Convergence/Divergence (MACD). Fast EMA 12. Slow EMA 26. SMA 9.
  • Bollinger Bands. Period 20
  • Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements.
  • Long non-commercial positions are the total long position of non-commercial traders.
  • Non-commercial short positions are the total short position of non-commercial traders.
  • Total non-commercial net position is the difference between the short and long positions of non-commercial traders.

The material has been provided by InstaForex Company –

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