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EUR/USD on October 3. EUR opening new week quietly

Relevance up to 06:00 2022-10-04 UTC–4

Hi, dear traders! EUR/USD reversed in favor of the US dollar on Friday and briefly settled above 0.9782. Later on, the currency pair closed above the trend channel. This price action allows traders to reckon a further rise towards 0.9963, the next Fibonacci correction of 323.6%. Once the pair closed above the downtrend channel, the euro has a higher chance for further growth. Nevertheless, traders had to consider a lot of factors nowadays. I don’t think that traders have weighty arguments for EUR’s growth. The geopolitics, the economy, and politics are now in such conditions that EUR could reverse its trajectory by 180 degrees anytime soon. Indeed, the EU economic prospects are bleak after the explosions on the Nord Stream pipelines. Europe might have to survive without Russian gas for a long time. The European economy is heavily dependent on Russian gas supplies. All in all, the pending winter could pose a tough challenge to the EU whose GDP is set to shrink.

So, the slowdown in the EU economy arouses a lot of questions and speculation among investors. The US economy has already entered negative territory but its contraction has been predicted well in advance. The headache for the US monetary authorities is soaring inflation which has been high on the Fed’s agenda. The economic contraction is a consequence of the humongous stimulus programs which pumped up the money supply in the last couple of years. Therefore, high inflation and GDP contraction were quite predictable. In contrast to the US, the economic downturn in the EU is caused by the energy crisis which popped up as a Black Swan. It could not be predicted and its scale and aftermath still cannot be estimated. Besides, the ECB also embarked on the cycle of rate hikes. Thus, the EU economy is suffering a double whammy. In other words, the US economy might exit a recession as soon as the Federal Reserve stops raising interest rates whereas the EU economy might get stuck in a downturn due to the shortage of Russian gas or its elevated price. This is a bearish factor for the euro.

On the 4-hour chart, EUR/USD reversed again upwards in the euro’s favor and resumed its growth towards the upper line of the downtrend channel. The prevailing downtrend corridor reflects the bearish sentiment. I take forecasts on EUR’s strong growth with a pinch of salt. Still, if EUR/USD settles firmly above the downtrend channel, it will increase the likelihood of EUR’S growth.

Commitments of Traders (COT):

Last week, speculators opened 1,272 long contracts and 1,824 short contracts. It means that the overall sentiment among market makers remained the same last week. The total number of long contracts amounts now to 208K contracts and short contracts equal 174K. Notably, market sentiment among market players turned bullish but the single European currency faces obstacles to its growth. In a few recent weeks, the euro has got a higher chance for growth, but traders were poised to buy the US dollar than the euro. Therefore, I would focus on important downward channels on the 1-hour and 4-hour charts. The junior corridor has been over. Now we should give priority to the senior time frames. Besides, I would recommend monitoring geopolitical news because they serve as market catalysts.

Economic calendar for US and EU

EU: Manufacturing PMI (08-00 UTC)

US: Manufacturing PMI (13-45 UTC)

US: ISM Manufacturing PMI (14-00 UTC)

On October 3, the economic calendar contains only PMIs for both the EU and the US. Hence, the information environment will make a minor impact on trading sentiment.

Outlook for EUR/USD and trading tips

I would recommend selling EUR/USD at a drop off the upper line of the trend channel on the 4-hour chart with a target of 0.9581. We could buy EUR after the price settles above the upper line of the trend channel on the 4-hour chart with a target of 1.0638.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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