24.10.202312:33 Forex-elemzések és áttekintések: Overview of the EUR/USD pair. October 24th. The euro surges before the ECB meeting

The EUR/USD currency pair significantly increased on Monday. It is still rising, which clearly indicates the nature of such a movement. If the rise of the European currency were due to some fundamental or macroeconomic event, it would not have lasted so long. The usual reaction to any significant event lasts for several hours. In our case, the euro has been rising for nearly a day. Thus, the nature of this movement is purely technical.

Recall that we have warned many times that we expect the second leg of an upward correction after a two-month decline in the pair. This time, the market did not exhaust its last strength to move the pair in the desired direction and opted for a correction. We assumed and continue to assume that the correction should consist of three waves, but in reality, it may turn out to be more complex. What's important is that the correction could now end at any moment. We still expect a resumption of the downtrend, and there are no medium-term reasons for the euro to rise.

Another crucial point is the breach of the Kijun-sen line in the 24-hour time frame. Along with the Fibonacci level of 38.2% at 1.0609. Thus, the correction may now continue towards the Senkou Span A and Senkou Span B lines, which are located at 1.0741 and 1.0952, respectively. Therefore, in the short term, there is potential for the euro to rise. However, we reiterate that the correction could end at any moment. The euro does not have strong growth factors. The European Union's economy is still stagnant, inflation is higher than in the USA, the central bank's interest rate is lower than in the USA, and the central bank's stance is more dovish than that of the Federal Reserve.

What can we expect from Lagarde and the company this week?

On Thursday morning, the results of the penultimate ECB meeting of the year will be announced. At the moment, the markets do not expect any significant decisions from the European regulator. Perhaps there will be an announcement about accelerating the ECB's balance sheet reduction, but this is a relatively secondary (although "hawkish") factor. The main thing is that the interest rate will not be raised, as practically all members of the monetary committee have been insisting for several months. Therefore, the ECB's stance simply cannot change, and Christine Lagarde's rhetoric is unlikely to change. Thus, the market's reaction to this event may be quite limited, and the euro is unlikely to receive additional market support.

At the same time, the ECB has one trump card in the battle against the Federal Reserve. This trump card is maintaining the interest rate at a maximum level for a longer period. Recall that the Federal Reserve's rate is 5.5%, and by the end of the year, it may increase to 5.75%, implying a faster reduction in inflation to the target level than in the European Union. However, the ECB has taken a different course to achieve price stability, and at the time when the Federal Reserve begins to lower the interest rate, the ECB may still keep it at its maximum. Then the divergence between interest rates will begin to shrink, and the euro may gain strength.

However, this will not happen until next year or even the second half of next year. Information from the Federal Reserve suggests that interest rates are unlikely to start falling in the next 6–8 months. Given the recent rise in inflation in the past three months, it is likely that the U.S. regulator will also keep the rate at its maximum for a long time. However, we remember that the market loves to anticipate events. As soon as inflation drops below 3% or the Federal Reserve starts giving signals of an imminent easing of monetary policy, the demand for the dollar may immediately start to decline. This could happen several months before an actual rate cut. Therefore, the dollar has the potential to rise in the next 3–4 months, but the fundamental backdrop could change dramatically beyond that.

The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 24th is 73 pips and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0609 and 1.0755 on Tuesday. A reversal of the Heiken Ashi indicator downward will indicate a possible resumption of the downtrend.

Nearest support levels:

S1 – 1.0620

S2 – 1.0498

S3 – 1.0376

Nearest resistance levels:

R1 – 1.0742

R2 – 1.0864

R3 – 1.0986

Trading recommendations:

The EUR/USD pair has resumed its upward movement. Therefore, it is possible to maintain long positions with targets at 1.0742 and 1.0755. However, it's important to remember that we are dealing with a correction that could end at any moment. Short positions can be considered only after the price is firmly below the moving average, with a target of 1.0498.

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 probable price channel in which the pair will trade over the next day, based on current volatility indicators.

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