23.10.202310:22 Forex Analysis & Reviews: Overview of the EUR/USD pair. October 23rd. The Federal Reserve is not certain that inflation is moving towards 2%

The EUR/USD currency pair showed absolutely no movement throughout Friday. Volatility amounted to 38 points, so there is essentially nothing to talk about. The price remained above the moving average line, but that does not necessarily imply a continuation of the upward trend. Over the past few weeks, the price has crossed the moving average line five times. We still believe that the upward correction should continue for some time, and the euro should reach levels of 1.0650 and 1.0700. However, the market may have a different opinion on this matter. It is worth noting that in the 24-hour timeframe, the price has hit a critical line and an important Fibonacci level, which is currently preventing it from going further upwards.

Monday began with the same incomprehensible movement. Most likely, this will continue throughout the week, so trading this pair now is not the most advisable decision. More precisely, you can trade the pair if you make the necessary adjustments to your trading strategy. At the moment, the movements are so weak that they are difficult to trade even on the smallest timeframes. Therefore, trades should be held for several days to expect at least some profit. However, in the 4-hour timeframe, the movements are very erratic, with constant retracements. Therefore, even with these adjustments, it is quite challenging to count on profit.

The main thing we want to convey to traders at this time is that we expect the continuation of the correction, after which the downtrend will resume. It is pointless to base trading decisions on the moving average since the price overcomes it almost daily.

The head of the Dallas Federal Reserve doubts the prospects of inflation. On Friday, several Federal Reserve representatives made statements. If in the past two weeks we have only heard "dovish" statements (excluding Powell's speeches), then by the end of last week, "hawkish" notes began to reappear. In particular, the President of the Dallas Federal Reserve, Lorie Logan, stated that she is not sure if inflation is moving towards the target level of 2%. She mentioned that significant progress has been made in combating inflation, but it is still too high, and in recent months, there have been movements in the opposite direction of the main trajectory. In Logan's opinion, the US economy is showing excellent results, and the labor market is tight. All of this creates problems in the fight against inflation, as wages continue to rise and Americans are spending more than desired, causing suppliers and manufacturers to raise prices.

At the same time, Mrs. Logan mentioned that the Federal Reserve has some time to observe the economy and markets before making decisions on monetary policy (likely referring to a new interest rate hike). She also noted the rise in government bond yields, hinting that it could help in the fight against inflation. Thus, this time, Mrs. Logan did not talk about the inadvertent tightening of monetary policy. Instead, her speech can be interpreted as "moderately hawkish," with the possibility of another rate hike if things do not go as planned. Therefore, we believe that the overall rhetoric of the Federal Reserve's monetary policy committee has not changed over the past few weeks, and the US currency can still find support from the American regulator.

Furthermore, we can clearly see how difficult it is for the pair to move upwards at the moment. This implies that the market does not see any reason to buy the euro right now. Even with a correction, problems arise, so the primary option remains a decline. A decline to the level of 1.0200, or even to the price parity level. The ECB is not sending any signals about raising rates again, and the European economy continues to disappoint more often than it pleases. There are not many reasons for the euro to rise, especially.

The average volatility of the euro/dollar currency pair over the past 5 trading days as of October 23rd is 62 points and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0532 and 1.0656 on Monday. A reversal of the Heiken Ashi indicator downward will indicate a new stage of the downtrend.

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 has once again settled above the moving average. Currently, there is a high probability of a flat, so the price can easily and freely cross the moving average in both directions. Each such crossing does not guarantee movement in the desired direction, not even by 50 points. We advise exercising caution when it comes to any trading signals.

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 at the moment.

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

CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) indicates an upcoming trend reversal in the opposite direction.