Overview of the EUR/USD pair. October 18th. The Fed puts a stop to tightening
October 18, 2023 9:25 am
The EUR/USD currency pair held above the moving average line during Tuesday’s session. Yesterday, we were wondering what would happen near the moving average, considering the answer to this question very important. As we can see, the consolidation above the moving average has occurred, opening up further correction prospects for the pair. Recall that we expect further corrections to the north for the euro, as the latest leg of the upward movement turned out to be too weak. However, we would like to draw traders’ attention to one significant aspect.
As is known, it is not recommended to trade during corrections. Of course, not all corrections are the same. If we are talking about a 24-hour timeframe correction, then on a 4-hour chart, this is a trend of 300–400–500 points. It would be a shame not to take advantage of such an opportunity. However, now we are talking about a correction in a 4-hour timeframe, so there is no reason to expect a strong and sharp movement. Look at the volatility indicators over the past 30 days. For 21 out of 30 days, the volatility did not exceed 60 points. That’s very low. Therefore, it’s not the best time to trade this pair right now. At least in the 4-hour timeframe. Currently, trades that are held for several days are more relevant, aiming for at least 80–100 points in profit. On lower timeframes, the pair often reverses, making trading less convenient.
As for the longer-term prospects for the euro, on the daily chart, the price has not managed to establish itself above the critical line and the Fibonacci level of 38.2%. Therefore, there is no upward correction in the daily timeframe. It’s very challenging for the bulls to overcome these two obstacles, so any further growth is likely to be equally weak.
Patrick Harker does not recommend raising the rate. Lately, we have been focusing on the ECB and its refusal to further tighten policy. Rumors about this began to surface three months ago when ECB members started openly discussing the inadvisability of raising the key rate further. Partly, the softening of hawkish rhetoric led to an 800-point drop in the European currency. However, in recent weeks, similar messages have emerged from the Fed’s corridors. Last week, at least three Federal Reserve officials stated that they saw no need for another rate hike, and yesterday, the head of the Philadelphia Fed, Patrick Harker, announced it explicitly: “Rate hikes are probably over.”
This statement is unexpected in our view because the Fed has all the necessary tools and opportunities to continue tightening. The economy continues to grow at a high pace, the labor market is strong, and unemployment, while rising, remains at a low level. However, inflation has been rising in the last three months, so it would be logical to expect another rate hike in November. However, the FedWatch tool indicates that the market has very little belief in tightening on November 1. The probability is currently no higher than 7%. Of course, there is still the December meeting. If inflation rises by the end of October, the Federal Reserve may consider another rate hike. But at the moment, it can be said that the Fed’s stance is also softening.
What does this mean for the dollar? Considering that we view the current decline as a “return to a fair value,” the strengthening of the dollar should continue. Moreover, we can all see how difficult it is for the bulls to push the pair higher. Softening Fed rhetoric may exert pressure on the dollar, but it has fallen for too long to start falling again now. When the Fed starts sending clear signals about its readiness to ease monetary policy, the American currency may once again head lower. But that moment is still far off, as inflation is far from the target level of 2%. In essence, it is currently double the target.
The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 18 is 69 points, characterized as “average.” Thus, we expect the pair to move between the levels of 1.0508 and 1.0646 on Wednesday. A reversal of the Heiken Ashi indicator downward will indicate a new 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 has re-established itself above the moving average. Therefore, long positions can be considered with targets at 1.0620 and 1.0646 until they consolidate below the moving average line. Short positions can be considered if the price re-establishes itself below the moving average, with targets at 1.0498 and 1.0376. Volatility may remain low in the near future.
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.
Murrey levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will trade over the next day, based on current volatility indicators.
CCI indicator – its entry into the overbought territory (above +250) or oversold territory (below -250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The EUR/USD currency pair held above the moving average line during Tuesday’s session. Yesterday, we were wondering what would happen near the moving average, considering the answer to this question very important. As we can see, the consolidation above the moving average has occurred, opening up further correction prospects for the pair. Recall that we expect further corrections to the north for the euro, as the latest leg of the upward movement turned out to be too weak. However, we would like to draw traders’ attention to one significant aspect.
As is known, it is not recommended to trade during corrections. Of course, not all corrections are the same. If we are talking about a 24-hour timeframe correction, then on a 4-hour chart, this is a trend of 300–400–500 points. It would be a shame not to take advantage of such an opportunity. However, now we are talking about a correction in a 4-hour timeframe, so there is no reason to expect a strong and sharp movement. Look at the volatility indicators over the past 30 days. For 21 out of 30 days, the volatility did not exceed 60 points. That’s very low. Therefore, it’s not the best time to trade this pair right now. At least in the 4-hour timeframe. Currently, trades that are held for several days are more relevant, aiming for at least 80–100 points in profit. On lower timeframes, the pair often reverses, making trading less convenient.
As for the longer-term prospects for the euro, on the daily chart, the price has not managed to establish itself above the critical line and the Fibonacci level of 38.2%. Therefore, there is no upward correction in the daily timeframe. It’s very challenging for the bulls to overcome these two obstacles, so any further growth is likely to be equally weak.
Patrick Harker does not recommend raising the rate. Lately, we have been focusing on the ECB and its refusal to further tighten policy. Rumors about this began to surface three months ago when ECB members started openly discussing the inadvisability of raising the key rate further. Partly, the softening of hawkish rhetoric led to an 800-point drop in the European currency. However, in recent weeks, similar messages have emerged from the Fed’s corridors. Last week, at least three Federal Reserve officials stated that they saw no need for another rate hike, and yesterday, the head of the Philadelphia Fed, Patrick Harker, announced it explicitly: “Rate hikes are probably over.”
This statement is unexpected in our view because the Fed has all the necessary tools and opportunities to continue tightening. The economy continues to grow at a high pace, the labor market is strong, and unemployment, while rising, remains at a low level. However, inflation has been rising in the last three months, so it would be logical to expect another rate hike in November. However, the FedWatch tool indicates that the market has very little belief in tightening on November 1. The probability is currently no higher than 7%. Of course, there is still the December meeting. If inflation rises by the end of October, the Federal Reserve may consider another rate hike. But at the moment, it can be said that the Fed’s stance is also softening.
What does this mean for the dollar? Considering that we view the current decline as a “return to a fair value,” the strengthening of the dollar should continue. Moreover, we can all see how difficult it is for the bulls to push the pair higher. Softening Fed rhetoric may exert pressure on the dollar, but it has fallen for too long to start falling again now. When the Fed starts sending clear signals about its readiness to ease monetary policy, the American currency may once again head lower. But that moment is still far off, as inflation is far from the target level of 2%. In essence, it is currently double the target.
The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 18 is 69 points, characterized as “average.” Thus, we expect the pair to move between the levels of 1.0508 and 1.0646 on Wednesday. A reversal of the Heiken Ashi indicator downward will indicate a new 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 has re-established itself above the moving average. Therefore, long positions can be considered with targets at 1.0620 and 1.0646 until they consolidate below the moving average line. Short positions can be considered if the price re-establishes itself below the moving average, with targets at 1.0498 and 1.0376. Volatility may remain low in the near future.
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.
Murrey levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will trade over the next day, based on current volatility indicators.
CCI indicator – its entry into the overbought territory (above +250) or oversold territory (below -250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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