Overview of the EUR/USD pair. October 12th. The European economy won’t grow in the 3rd quarter
October 12, 2023 11:24 am
The currency pair EUR/USD continued its upward correction movement on Wednesday. The movement is weak but stable. In principle, we start our articles with the same words every day because nothing fundamentally changes in the market. We have repeatedly mentioned that we expect the continuation of the upward correction regardless of the macroeconomic and fundamental background. Simply because the euro currency has been declining for 2 months in a row, losing about 800 points during that time. Therefore, a correction of 300–400 points can be expected. Since there are no long-term reasons for the pair to move north, after completing the current correction, we expect a resumption of the downward movement towards the level of 1.02.
Yesterday, we wrote that the EUR/USD pair on the 24-hour timeframe hit a critical line and the Fibonacci level of 38.2% – 1.0609. These resistances may prevent the pair from moving further up, but at the moment, they have been worked through, and there was no bounce from them. Therefore, there are reasons to assume their breakthrough, which will allow the price to rise by another 100–150 points. On the 4-hour timeframe, the technical picture is even simpler: the price is above the moving average, so there are no reasons to expect a new downward movement now.
Of course, there should always be a backup plan. Under certain circumstances, the upward trend, which began to form last autumn, may resume. For example, if the current correction significantly drags on, the Federal Reserve no longer raises interest rates, and by December, it actively hints at monetary policy easing in 2024. All these factors could exert pressure on the dollar, even though we believe that the price must fall to $1.02 before it rises. However, under certain circumstances, the upward trend may resume, as the dollar currently has no substantial reason to start a new trend.
De Cos is positive about inflation and negative about GDP. Over the past three months, we have repeatedly witnessed statements from ECB monetary committee members that it is no longer advisable to raise the key rate. These discussions began in the middle of the summer, and about 3 weeks later, the European currency started to decline. Now, it is important not how the rate will change in the near future but how long it will be maintained at its peak level. Meanwhile, the Federal Reserve may start reducing its rate after some time. Yesterday, Pablo Hernandez de Cos, the head of the Bank of Spain, stated that he expects inflation to return to 2% over the next 1-2 years. He did not mention any additional tightening of monetary policy, considering the current rate levels to be sufficiently restrictive to achieve the goal. He also stated that GDP in the third quarter could turn out to be negative.
It has been extremely difficult to expect growth from the European economy for a whole year. The last three quarters ended with the following results: -0.1%, +0.1%, and +0.1%. If the next quarter shows another negative figure, it will not surprise anyone. We have repeatedly pointed out to traders the significantly weaker state of the European economy compared to the American one. From our perspective, this is another factor contributing to the decline of the European currency in the near future. Experts and economists have been talking about a recession in the American economy for over a year. However, during this time, quarterly GDP data has shown growth of at least 2%. Now, economists expect a recession in 2024, while official representatives of the Federal Reserve believe that they can avoid an economic downturn. In general, the American economy is much stronger than the European one, the Federal Reserve’s rate is much higher than the ECB’s rate, and this situation is likely to remain in the coming quarters. Therefore, we do not see the basis for a strong rise in the euro currency. Only a correction.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of October 12th is 69 points and is characterized as “average.” Therefore, we expect the pair to move between the levels of 1.0563 and 1.0701 on Thursday. A reversal of the Heiken Ashi indicator back down will indicate the possible resumption of the downward movement.
Nearest support levels:
S1 – 1.0498
S2 – 1.0376
S3 – 1.0254
Nearest resistance levels:
R1 – 1.0620
R2 – 1.0742
R3 – 1.0864
Trading recommendations:
The EUR/USD pair continues its upward movement within the scope of a correction. Currently, you can consider new short positions with targets at 1.0498 and 1.0376 if the price settles back below the moving average. Long positions can be considered when the price is above the moving average with targets at 1.0701 and 1.0742, but we do not expect a strong rise in the euro currency.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it means the trend is currently strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel in which the pair will trade in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold territory (below -250) or overbought territory (above +250) indicates an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The currency pair EUR/USD continued its upward correction movement on Wednesday. The movement is weak but stable. In principle, we start our articles with the same words every day because nothing fundamentally changes in the market. We have repeatedly mentioned that we expect the continuation of the upward correction regardless of the macroeconomic and fundamental background. Simply because the euro currency has been declining for 2 months in a row, losing about 800 points during that time. Therefore, a correction of 300–400 points can be expected. Since there are no long-term reasons for the pair to move north, after completing the current correction, we expect a resumption of the downward movement towards the level of 1.02.
Yesterday, we wrote that the EUR/USD pair on the 24-hour timeframe hit a critical line and the Fibonacci level of 38.2% – 1.0609. These resistances may prevent the pair from moving further up, but at the moment, they have been worked through, and there was no bounce from them. Therefore, there are reasons to assume their breakthrough, which will allow the price to rise by another 100–150 points. On the 4-hour timeframe, the technical picture is even simpler: the price is above the moving average, so there are no reasons to expect a new downward movement now.
Of course, there should always be a backup plan. Under certain circumstances, the upward trend, which began to form last autumn, may resume. For example, if the current correction significantly drags on, the Federal Reserve no longer raises interest rates, and by December, it actively hints at monetary policy easing in 2024. All these factors could exert pressure on the dollar, even though we believe that the price must fall to $1.02 before it rises. However, under certain circumstances, the upward trend may resume, as the dollar currently has no substantial reason to start a new trend.
De Cos is positive about inflation and negative about GDP. Over the past three months, we have repeatedly witnessed statements from ECB monetary committee members that it is no longer advisable to raise the key rate. These discussions began in the middle of the summer, and about 3 weeks later, the European currency started to decline. Now, it is important not how the rate will change in the near future but how long it will be maintained at its peak level. Meanwhile, the Federal Reserve may start reducing its rate after some time. Yesterday, Pablo Hernandez de Cos, the head of the Bank of Spain, stated that he expects inflation to return to 2% over the next 1-2 years. He did not mention any additional tightening of monetary policy, considering the current rate levels to be sufficiently restrictive to achieve the goal. He also stated that GDP in the third quarter could turn out to be negative.
It has been extremely difficult to expect growth from the European economy for a whole year. The last three quarters ended with the following results: -0.1%, +0.1%, and +0.1%. If the next quarter shows another negative figure, it will not surprise anyone. We have repeatedly pointed out to traders the significantly weaker state of the European economy compared to the American one. From our perspective, this is another factor contributing to the decline of the European currency in the near future. Experts and economists have been talking about a recession in the American economy for over a year. However, during this time, quarterly GDP data has shown growth of at least 2%. Now, economists expect a recession in 2024, while official representatives of the Federal Reserve believe that they can avoid an economic downturn. In general, the American economy is much stronger than the European one, the Federal Reserve’s rate is much higher than the ECB’s rate, and this situation is likely to remain in the coming quarters. Therefore, we do not see the basis for a strong rise in the euro currency. Only a correction.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of October 12th is 69 points and is characterized as “average.” Therefore, we expect the pair to move between the levels of 1.0563 and 1.0701 on Thursday. A reversal of the Heiken Ashi indicator back down will indicate the possible resumption of the downward movement.
Nearest support levels:
S1 – 1.0498
S2 – 1.0376
S3 – 1.0254
Nearest resistance levels:
R1 – 1.0620
R2 – 1.0742
R3 – 1.0864
Trading recommendations:
The EUR/USD pair continues its upward movement within the scope of a correction. Currently, you can consider new short positions with targets at 1.0498 and 1.0376 if the price settles back below the moving average. Long positions can be considered when the price is above the moving average with targets at 1.0701 and 1.0742, but we do not expect a strong rise in the euro currency.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it means the trend is currently strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel in which the pair will trade in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold territory (below -250) or overbought territory (above +250) indicates an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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