10.10.202309:59 Forex-elemzések és áttekintések: Overview of the EUR/USD pair. October 10th. The Israeli conflict is not providing support for the dollar at the moment

The EUR/USD currency pair continued its overall upward correction during Monday, which began a few days ago and was anticipated for a couple of weeks. We believe that the corrective movement should continue under current circumstances since the European currency has been declining for two months with minimal correction. However, almost every day brings reports, news, or data that suggest a highly probable resumption of the downward dollar trend.

For example, on Friday, the Non-Farm Payrolls report was supposed to trigger a strong strengthening of the American currency. It did initially, but only for half an hour, after which the upward movement resumed. So, the euro strengthened on exceptionally strong US labor market data. On Monday, the markets had to digest information about the military conflict in Israel, which started on Saturday. The dollar opened with a positive gap, but by the end of the day, this gap was closed, indicating that the US currency did not appreciate due to increased geopolitical tension.

Recall that the dollar is considered a "reserve currency," which means it is the preferred currency for investors and market participants in difficult and dangerous times. In simpler terms, it is the safest currency and is in high demand during various cataclysms, global disasters (such as the "coronavirus" epidemic), and wars. However, in our case, we do not see the strengthening of the dollar again.

On one hand, this is logical because the American currency has been rising for two months, and no instrument can continue to rise indefinitely without corrections. On the other hand, it appears that the euro and the pound are currently rising undeservedly, significantly reducing the potential "life span" of the correction.

The fundamental backdrop for the euro remains weak. Remember how demand for the US currency rose when the conflict in Ukraine began? Of course, it didn't rise all the time the conflict lasted, but in the first few months, it rose very strongly. Currently, it is important to understand what and when the conflict in Israel will end. Israeli forces have already begun clearing their territory of militants, who, by the way, are not so numerous. This is not the regular army of Palestine, which has at least 100,000 soldiers. Several thousand or even tens of thousands of armed individuals cannot capture and hold half of the country's territory for a long time, even if it is as small as Israel. Therefore, from our point of view, the active stage of this conflict will end very quickly.

The passive stage can last for many years and decades, so it no longer surprises anyone. Unfortunately, humanity has constantly engaged in wars throughout its history, and as you grow older, you begin to perceive them as an integral part of human existence. Therefore, at this time, we do not see significant reasons for the strengthening of the US dollar due to the conflict between Palestine and Israel. However, the dollar can continue to rise based on the factors we regularly mentioned in 2023. After the completion of the upward correction, which may last another two days or even a month, we expect a resumption of the pair's decline towards the 2nd level. The price parity between the euro and the dollar no longer seems unattainable. Everything will depend on the fundamental background.

The same conflict in Israel could gain momentum in two months and engulf half of the Middle East in war. In a couple of months, the Fed may start talking about its readiness to begin monetary policy easing. In a couple of months, inflation may rise again worldwide due to rising energy prices stemming from the Middle East conflict. Unfortunately, a lot can happen, and over time, this "a lot" can have a significant impact on the movement of major currency pairs and other markets.

The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 10th is 70 points and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0492 and 1.0632 on Tuesday. A reversal of the Heiken Ashi indicator back down will indicate a 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 maintains a downward trend but has started a new phase of correction. Short positions can be considered now, with targets at 1.0498 and 1.0376 if the price settles below the moving average. Long positions can be considered if the price is above the moving average with targets at 1.0620 and 1.0632, but we do not expect a strong increase 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 strong right now.

Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted at the moment.

Murray 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 oversold territory (below -250) or overbought territory (above +250) indicates an impending trend reversal in the opposite direction.