The EUR/USD currency pair traded quite calmly on Monday, but a new round of downward movement began in the American trading session. First, it is necessary to consider the current technical picture because it is from it that we should start now. Recall that the downward trend has been going on for almost two years, which is a strong signal. And a strong trend is very difficult to break. During this entire period, the European currency showed a maximum correction of 400 points, although the whole trend is already more than 2500 points. And this time, we can again witness a banal correction, although it seemed that the euro and the pound had exhausted the potential of their falls last week. However, upon closer examination, it becomes clear that none of the important lines on the 24-hour TF have yet been overcome. The overall correction of the euro is, at the moment, a little more than 300 points. Thus, we will not be surprised if the price returns very quickly to the area below the moving average line this time and resumes falling with the renewal of 20-year lows.
The analysis of the euro/dollar currency pair in recent months has been reduced only to global factors that are changing extremely slowly. Let's agree that in 2022, the main factors in the fall of the euro and the growth of the dollar were geopolitics and the "foundation." And these factors remain the same as they were up to the current moment. If so, they were then based on the fact that we should expect strong growth of the euro currency if, until today, we had observed its decline. Of course, any trend ends sooner or later. Of course, the euro currency is already very much oversold. But everything will depend on the market itself. If it decides that the background remains negative, it will not buy the euro currency. And the background remains negative. Many experts call October the key month in the geopolitical conflict in Ukraine. The Armed Forces of Ukraine continue to move forward, but mobilization in Russia has not yet yielded any results. Vladimir Putin signed a decree on the annexation of four regions (their parts) to Russia. However, it is still unclear how this will be implemented in practice if the front line and, accordingly, the borders of these territories change almost every day.
A further escalation of the conflict is also possible since the Kremlin has already stated that strikes on the territory of Russia recognized by it can provoke a retaliatory nuclear strike. Experts' opinions on this issue are also divided (some believe that this is a bluff, some believe that there is a real threat), but you must agree that there has been too much talk about nuclear strikes in the information space lately. Naturally, risky currencies and assets continue to be under pressure.
The euro currency has too many potential risks.
There were practically no new and interesting messages on Monday. By and large, there are now several topics that excite the minds of traders, analysts, and just experts. Firstly, this is a diversion on the Nord Stream. It is unclear who arranged it and why. Secondly, it is the mobilization in Russia, its consequences, the prolongation of Ukraine's military conflict, possible nuclear strikes, and NATO's entry into the conflict. The European Union and the United States reacted quickly to the Kremlin's decision to annex the annexed territories and imposed new sanctions. However, according to political scientists and economists, these sanctions no longer have the same effectiveness as the first packages. In other words, the West has fewer and fewer levers of pressure on Moscow, and each subsequent package of sanctions causes less damage to the Russian economy and government. Thus, if Moscow did not change its decision earlier, now it is not worth waiting for it. But it is worth waiting for escalation. The escalation of the conflict for the euro currency is death. The gas crisis in the European Union is a new reason to fall against the dollar. Nuclear strikes, wherever they happen, are another reason to buy American currency, not the euro. We would say that the euro remains at risk and may resume its decline.
The average volatility of the euro/dollar currency pair over the last five trading days as of October 4 is 147 points and is characterized as "very high." Thus, on Tuesday, we expect the pair to move between the levels of 0.9676 and 0.9970. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward movement.
Nearest support levels:
S1 – 0.9766
S2 – 0.9644
S3 – 0.9521
The nearest resistance levels:
R1 – 0.9888
R2 – 1.0010
R3 – 1.0132
Trading Recommendations:
The EUR/USD pair remains above the moving average line and may continue to move up. Thus, now we should consider new long positions with targets of 0.9888 and 0.9970 if a price rebounds from the moving average or a reversal of the Heiken Ashi indicator upwards. Sales will become relevant again no earlier than fixing the price below the moving average with a target of 0.9676.
Explanations of the illustrations:
Linear regression channels help 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.
