29.09.202312:36 Forex Analysis & Reviews: Overview of the EUR/USD pair. September 29th. Correction for the euro and inflation expectations

The currency pair EUR/USD finally showed an upward correction on Thursday. Initially, the pair worked at the Murray level "2/8" (1.0498), which is also the 5th level that we have repeatedly mentioned as a target. This was followed by a rebound from these levels and a rise towards the moving average line. From a technical standpoint, the movements were simply perfect. However, we rush to disappoint those who are already expecting a correction. So far, the price hasn't even been able to establish itself above the moving average, so it's too early to talk about a significant correction.

The situation is actually quite ambiguous. The CCI indicator entered the oversold zone three times, which is almost a hundred percent guarantee of the start of a correction. Moreover, this correction may not be just 100 points but 200–300 points at a minimum. Especially considering that over the past two months, the euro has fallen by 800 points. At the same time, the bearish market is very strong. Nevertheless, we still believe that the correction will continue because, at the moment, the pair hasn't had the time to consolidate above the moving average. Therefore, this could happen today because the macroeconomic background will be rich, and Christine Lagarde will also be speaking. In the event of a price rebound from the moving average line, a resumption of the downward movement is possible, but in this case, it will be easy to identify as a clear signal will be given by the moving average.

On the 24-hour TF (time frame), the pair is positioned below all the lines of the Ichimoku indicator, which allows it to count on a small correction towards the critical line. The pair has dropped to the lows of February and March of this year, from which it could rebound. Note that all the targets we mentioned have been reached, but that doesn't mean the decline of the European currency will end here. We believe it may continue down to the second level.

The inflation report in the EU could trigger the rise of the euro. In a few hours, the EU will publish the first estimate of the inflation report for September. Yesterday, a similar report was published in Germany, and a sharp drop in the indicator partly caused the rise of the European currency. It's worth noting that in the past, any significant slowdown in inflation caused the euro to fall, as the likelihood of the ECB tightening monetary policy immediately decreased. Now, as we have already mentioned, there is no longer a correlation between inflation and rates in the EU. The ECB has clearly signalling to the market that the tightening cycle of monetary policy is over and rate hikes are now only possible in exceptional cases. For example, if inflation starts to rise sharply and rapidly. If inflation is falling, there is no sense for the ECB to tighten further.

Based on the logic that previously, a decline in inflation caused the euro to fall, we can assume that the situation will be the opposite now. Thus, a sharp drop in inflation (as currently forecasted) + a possible start of a technical correction = a high probability of the euro rising on Friday. Naturally, if it turns out today that inflation has fallen much weaker than expected, the market's reaction may be different, but we believe that it's best to rely on the technical picture for now.

We should also note Christine Lagarde's speech today, which is unlikely to bring any important information to the market. Over the past two weeks, almost the entire ECB monetary committee has spoken, so we cannot expect any new information now. Ms. Lagarde is unlikely to even comment on the new inflation report, as these two events are scheduled for almost the same time. Therefore, the head of the ECB is unlikely to hinder the euro today and is unlikely to have any impact on market sentiment.

The average volatility of the EUR/USD currency pair over the past 5 trading days as of September 29 is 71 points and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0510 and 1.0652 on Friday. A reversal of the Heiken Ashi indicator downwards 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 to correct. Short positions can now be considered, with targets at 1.0510 and 1.0498 in the event of a price bounce from the moving average. Long positions can be considered if the price consolidates above the moving average line, with targets at 1.0652 and 1.0742.

Illustration explanations:

Linear regression channels – help determine the current trend. If both are pointing in the same direction, it means the trend is strong.

Moving average line (settings 20.0, smoothed) – determines short-term trends 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 range in which the pair will move over the next day, based on current volatility indicators.

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