Over the last trading day, the EUR/USD currency pair managed to surprise everyone with its amplitude fluctuation of 70 points, where the quotation almost reached the control point.
From technical analysis, we see a gradual recovery process, which was born after the quote felt resistance in the area of the mirror level of 1.1180. To date, we have a 29% recovery relative to the entire value of the oblong correction (October 1-21), which is still quite small, and the characteristic overbought is still present in the market. The emotional component of market participants is gradually leveled, where the symptoms of indecision in terms of considering short positions go by the wayside. In turn, the dynamics of volatility for several days (October21-24) experienced a process of slowing down, which only benefited in terms of recovery of the emotional component of the market.
Analyzing the past day hourly, we see that since the morning the euro/dollar pair showed an increased amplitude of oscillation, but the main round of volatility fell on the period of 15:00-18:00 (time on the trading terminal), where there was a local convergence with the subsequent control point of 1.1080 (1.1092). The causes and consequences of fluctuations will be analyzed a little later.
As discussed in the previous review, speculators rode the momentum like clockwork. So, the first deals were in the morning at the start of the European session, where we saw a local splash of the euro. After that, at the time of monitoring the news feed, a background worth attention was revealed, where short positions were laid.
Looking at the trading chart in general terms (daily period), we see an attempt to restore the initial interest, where everyone carefully analyzes the mark of 1.1080, since, in the case of its breakdown, the recovery will be considered not as an attempt, but as a fact. From global cycles, the quote is still in the main downward trend, and having an oblong correction relative to the trend has a value of only 17.50%. Thus, it is still very early to say goodbye to the downward trend.
The news background of the last day was extremely saturated with statistical data on Europe and the United States.
So, the PMI of Europe in the manufacturing sector remained at the same level of 45.7, with the forecast growth to 46.1. The composite PMI from Markit came out with a slight increase of 50.1-50.02.
In the United States, there were published data on applications for unemployment benefits, where the primary decreased by 6 thousand and repeated by 1 thousand. Preliminary PMI data were unchanged, but orders for durable goods fell, showing a decline of 1.1%.
The reaction of the EURUSD pair to the news background was only in the first half of the day, the second half of the day reacted to the information background.
In terms of information flow, we had the last meeting of the ECB under the auspices of Mario Draghi, where, in principle, we did not expect anything drastic. Interest rates remained at the same level, 0.00%; -0.50% on deposits, but in the interesting words slipped from the outgoing Draghi. Thus, the former head of the ECB said that interest rates will remain at extremely low levels with a possible reduction, as long as inflation does not rise to the level of two percent.
The reaction of the single currency to the meeting and the subsequent press conference was almost absent, perhaps for the reason that nothing was expected of it. Now, we expect all cardinal actions from the new head of the ECB Christine Lagarde.
So what had the effect of reducing the single currency in the past days? Another hype regarding Brexit.
Prime Minister of the United Kingdom Boris Johnson said that he intends to hold the final parliamentary elections on December 12, if the EU agrees to postpone Brexit until January 31, 2020. If the postponement lasts a shorter period until November 15 or 30, Johnson will once again try to hold through parliament draft transaction. In turn, the British opposition, represented by the Labor Party, is concerned that in case of early elections, the government may have additional votes to implement the exit plan without a deal.
As you know, the background of Brexit was immediately reflected in the rate of the British currency in terms of a downward jump of 127 points, followed by the single currency, having a descent of 59 points.
Today, in terms of the economic calendar, we have nothing interesting in terms of statistics. In terms of information background, we are waiting for specifics regarding the postponement of Brexit.
The upcoming trading week in terms of the economic calendar is extremely active, having not only statistics but also the meeting of the Federal Reserve System. According to many experts, the probability of reducing the refinancing rate at the current meeting is available. At the same time, the Brexit deadline (October 31) is coming to an end next week, which will give rise to heat in terms of information flow and comments on the divorce process.
The most interesting events displayed below:
On Tuesday, October 29th
USA 14:00 London time – Composite home price index S&P/CS Composite-20 not seasonally adjusted (y/y) (August)
On Wednesday, October 30th
USA 13:15 London time – Change in the number of people employed in the non-agricultural sector from ADP (October)
USA 13:30 London time – Annual GDP data (Q3 preliminary): Prev. 2.0% – Forecast 1.6%
USA 19:00 London time – The Fed meeting, followed by the announcement of the interest rate
USA 20:30 London time – Press conference of the Federal Open Market Committee of the Fed
On Thursday, October 31st
EU 11:00 London time – Gross domestic product (y/y) (Q3 preliminary): Prev 1.2%
EU 11:00 London time – Consumer price index (y/y) (October preliminary): Prev 0.8 % – Forecast 0.7%
USA 13:30 London time – The number of repeated/primary applications for unemployment benefits
On Friday, November 1st
USA 13:30 London time – Change in the number of people employed in the non-agricultural sector (October): Prev 136K – Forecast 105K
USA 13:30 London time – Unemployment rate (October): Prev 3.5% – Forecast 3.6%
USA 13:30 London time – Average hourly wage (compared to the same period last year) (y/y) (October): Prev 2.9% – Forecast 3.0%
USA 15:00 London time – The index of business activity in the manufacturing sector (PMI) from ISM (October)
Further development
Analyzing the current trading chart, we see a long-standing sluggish oscillation, where there was an attempt to roll back, but it ended not quite successfully. So, the morning accumulation in terms of consolidation 1.1100/1.1110 was locally nailed up, as we see at low volumes. After that, the reverse process occurred, as if someone made a fixation of previously short positions, and then re-entered them at a more optimal price. In turn, the pivot point remains at the same level in the area of the range of 1.1080/1.1092.
Detailing the available time interval minute by minute, we see that the spikes in consolidation came for the period of 08:00-15:00 (trading terminal time), as a fact of having an inverted V-shaped oscillation.
In turn, speculators who have open short positions against the background of the information flow, yesterday switched to partial and full fixation of transactions, with a possible restart already at the moment of passing the level of 1.1080.
It is likely to assume that in the case of a breakdown of the level of 1.1080, we can see a full recovery of the initial interest with a movement towards 1.1000, but in this development, there is an alternative scenario. So, if the level of 1.1080 does not fall and the ambiguous mood of market participants will remain, then I do not rule out a quote hang in a fairly wide lateral movement of 1.1080-1.1180.
In turn, the time-tested method of analyzing the news feed remains unchanged, revealing information about Brexit as early as possible.
Based on the above information, we derive trading recommendations:
We consider purchase positions in case of price-fixing higher than 1.1130. We consider selling positions in the case of a clear price-fixing lower than 1.1080, not a puncture shadow.Indicator analysis
Analyzing different sector timeframes (TF), we see that the indicators in the short and intraday perspective took a downward position at the stage of recovery attempts. The medium-term perspective invariably focuses on the inertia of the past.
Volatility per week / Measurement of volatility: Month; Quarter; Year.
Measurement of volatility reflects the average daily fluctuation, calculated for the Month / Quarter / Year.
(October 25 was built taking into account the time of publication of the article)
The volatility of the current time is 24 points, which is a low value for this period. It is likely to assume that if sellers still manage to push through the mark of 1.1080 and the characteristic Brexit background reappears, volatility may accelerate at times. Otherwise, we will be limited by the available framework.
Key levels
Resistance zones: 1.1180*; 1.1300**; 1.1450; 1.1550; 1.1650*; 1.1720**; 1.1850**; 1.2100.
Support zones: 1.1080**; 1.1000***; 1.0900/1.0950**; 1.0850**; 1.0500***; 1.0350**; 1.0000***
* Periodic level
** Range level
*** Psychological level
**** FOMO – loss of profits syndrome
***** The article is based on the principle of conducting transactions, with daily adjustments.