The EUR/USD currency pair was trading quite calmly again on Tuesday. In principle, the fundamental and macroeconomic backgrounds on the first days of the week are practically zero, so the market has nothing to react to. It still can't trade ultra-volatile all the time. The last few weeks have been very active, as eloquently signaled by the illustration of volatility below. But this cannot go on forever, so now there is a period of calm. Although there is practically no news of macroeconomic nature, certain news still comes from the foreign exchange market. In particular, several speeches by representatives of the monetary committees of the ECB and the Fed have already taken place this week, who unanimously assured the markets that they would continue to raise the rate and fight high inflation aggressively. Such news is equally good for both the euro and the dollar. However, both currencies cannot grow against each other simultaneously. Guess which currency is more likely to grow under equal conditions?
The market continues to ignore all the efforts of the ECB and the Bank of England. The ECB has raised the rate twice, so ignoring its actions can still be explained. The Bank of England raised the rate seven times, and the pound updated its absolute lows in the report. Therefore, we do not doubt that if the market still considers the Fed's monetary policy, it will continue to buy the dollar. And why wouldn't he consider the Fed's policy? Moreover, it goes hand in hand with the geopolitical background, provoking new purchases of the dollar as the safest currency. Thus, the "foundation" and geopolitics still tell us that the prospects for the dollar are much more favorable than those for the euro or the pound.
They will never tell us what happened to the Nord Stream and who is behind it.
So, the "Northern Streams" (three of the four gas pipelines) were undermined more than a week ago. During this time, Sweden conducted an official investigation into which neither representatives of the United States, representatives of Russia, nor representatives of third countries were allowed. Therefore, Washington and Moscow did not even wait for the investigation results and immediately declared that the states most hostile to them were behind these actions. It is not surprising that the Kremlin stated that the United States was interested in undermining (to supply more LNG to the European Union). Seven years ago, a NATO explosive device was already detected on the Nord Stream pipeline.
Washington refrained from commenting on the official level. Still, many officials close to the government said that Moscow was interested in this terrorist attack to continue the "gas pressure" on the European Union to lift some of the sanctions and justify the escalation of the military conflict in Ukraine. Several experts also noted that Moscow would have to pay serious penalties to the European Union at the end of the year for the non-fulfillment of gas contracts. However, since there was a "force majeure," there is no need to carry out penalties. In general, there are many opinions, as usual, but we may never be told what happened and who is behind it.
Sweden refused to provide Russia with the official investigation results, although it seems that the Russian Federation is the closest party to this conflict, directly affecting it. The only thing that Sweden has officially stated is that the gas pipelines were undermined, and this is not an accident. Also, Swedish Prime Minister Magdalena Andersson said this might not be the last terrorist attack, so security issues for her country and the entire European Union are now a priority. The Russian authorities have sent a protest note to Sweden, believing they should be acquainted with the investigation results. However, what can we, as market participants, hear from Moscow or Stockholm? If Stockholm announces that Moscow is behind the terrorist attack, then Moscow will immediately reject this version and accuse it of another portion of "anti-Russian rhetoric." If Stockholm claims the bomb was American, then Washington will accuse Sweden of slander. In any case, no one will admit their guilt. Therefore, as traders, it is not even that important to us who is behind the sabotage. Gas through this pipeline must no longer flow to Europe.
The average volatility of the euro/dollar currency pair over the last five trading days as of October 12 is 106 points and is characterized as "high." Thus, on Wednesday, we expect the pair to move between 0.9630 and 0.9841 levels. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 0.9644
S2 – 0.9521
Nearest resistance levels:
R1 – 0.9766
R2 – 0.9888
R3 – 1.0010
Trading Recommendations:
The EUR/USD pair has started a round of correction. Thus, now we should consider new short positions with targets of 0.9644 and 0.9630 in the case of a reversal of the Heiken Ashi indicator. Purchases will become relevant again no earlier than fixing the price above the moving average with goals of 0.9841 and 0.9888.
Explanations of the illustrations:
Linear regression channels help to determine the current trend. The trend is strong if both are directed in the same direction.
The moving average line (settings 20.0, smoothed) identifies the short-term trend and the direction in which trading should be conducted now.
Murray levels are target levels for movements and corrections.
Based on current volatility indicators, volatility levels (red lines) are the likely price channel in which the pair will spend the next day.
The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
