27.09.202402:42 Forex Analysis & Reviews: Overview of EUR/USD on September 27; The ECB May Be Ahead of Schedule

The EUR/USD pair attempted to resume its growth on Thursday. In principle, the technical picture remains unchanged daily as the euro crawls upward persistently. Of course, it doesn't do so "in the style of the pound sterling," which doesn't even correct. But the fact remains—the growth of the European currency continues.

In principle, the market continues to respond to a single factor – the factor of the Federal Reserve's monetary policy easing in the coming months, and possibly even ahead of schedule, looking toward 2025. For now, the dollar's decline can still be somewhat explained, as the Fed lowered the rate by 0.5% in September and may reduce it by the same amount in November. Thus, within just three months, the key rate could be reduced by 1%. And that's quite significant. At the same time, let's remind ourselves that the market began to price in the Fed's monetary policy easing not on September 19 or even the 17th. This process started long before the first easing and should end well before the entire cycle concludes. However, when the market began or will begin to factor in the European Central Bank's monetary policy easing remains an open question.

Yesterday, it became known that the ECB will consider the possibility of a new rate cut in October. In the first half of the year, ECB representatives persistently hinted that easing would begin in the summer, and the central bank would stick to a "one cut every two meetings" schedule. However, the latest disappointing data from the Eurozone may force the ECB to adjust its plans. Yes, it's not only the US data that regularly falls short of forecasts. For example, the business activity indices in the services and manufacturing sectors of the EU, published on Monday, showed a decline. Moreover, the manufacturing sector's business activity index dropped below the 50.0 mark, which is considered the "waterline." In Germany, the corresponding index fell to 40.3.

The European economy has only been pretending to grow for seven consecutive quarters, while inflation in the EU has dropped to its target level. Therefore, there's no point for the ECB to continue keeping the rate at its current level. The ECB now needs to think about stimulating the economy – not by injecting billions of euros, but by easing financial conditions.

Thus, a rate cut in October is not a planned event but a possible one. This doesn't mean the single currency will start falling tomorrow or immediately after the ECB meeting in October. The market stubbornly ignores any factors that point toward buying the dollar. The Fed's rate factor remains the key factor for market participants. Therefore, regardless of the fundamental or macroeconomic backdrop, the dollar can continue declining simply because market participants are actively selling it. However, even here, things are more complex. The latest COT reports showed a sharp decrease in the volume of long positions held by professional players on the euro. Yet, this still hasn't stopped the growth of the EUR/USD pair.

The average volatility of the EUR/USD pair over the last five trading days as of September 27 is 73 pips, which is characterized as "average." We expect the pair to move between the levels of 1.1095 and 1.1241 on Friday. The higher linear regression channel points upward, but the overall downward trend remains. The CCI indicator entered the overbought area three times, which signaled a possible shift to a downward trend and indicated the complete illogicality of the recent growth. However, we only saw a relatively weak correction.

Nearest support levels:

S1 – 1.1108

S2 – 1.1047

S3 – 1.0986

Nearest resistance levels:

R1 – 1.1169

R2 – 1.1230

R3 – 1.1292

Trading Recommendations:

The EUR/USD pair has resumed its upward movement. In our recent reviews, we mentioned that we expect only a decline from the euro in the medium term, as the new growth looks almost like a mockery at this point. There is a possibility that the market has already priced in all or nearly all of the upcoming Fed rate cuts. If that's the case, the dollar has no reason to fall. Short positions can be considered if the price consolidates below the moving average, with targets at 1.0986 and 1.0925. If you're trading based purely on technical analysis, then long positions remain relevant above the moving average line. The pair's growth may continue for some time by momentum.

Explanations for Illustrations:

Linear Regression Channels: These help determine the current trend. If both point in the same direction, the trend is currently strong.

Moving Average Line (settings 20,0, smoothed): It defines the short-term trend and the direction in which trading should currently be conducted.

Murray Levels: Target levels for movements and corrections.

Volatility Levels (red lines): The likely price channel in which the pair will spend the next 24 hours, based on current volatility indicators.

CCI Indicator: Its entry into the oversold area (below -250) or the overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.