EURUSD has been in a downtrend since the end of September, with only minor upward corrections. This is particularly evident on the hourly and four-hour charts. At the same time, the pair traded through the support level of 1.1000 and the local low of 1.0880 almost without a hitch. The pair is now in the strong support zone that has been in place since November last year. After such a pullback, each subsequent move increases the probability of a correction, which is bound to happen. The target for such a correction is now seen as the local low of 1.0880, which has not been retested by the price.
From a fundamental point of view, the strengthening of the US dollar was caused by a more cautious assessment of the prospects for an easing of the Fed's policy. Yesterday saw the release of the Manufacturing and Services PMIs. Both indices showed growth in their readings above both past and forecast levels. Such optimism about economic growth makes the Federal Reserve more cautious and prevents it from overstimulating the economy.
Similar German business activity indices also showed growth, and even more so than in the US, which could point to ECB support for the euro.
The market takes these assessments into account, but there always comes a time when technical oversold conditions (in this case, in EURUSD), like a tight spring, should release excessive tension.
The next major events that may cause high volatility in EURUSD are next Friday's US employment report and the presidential election on 5th November. Between now and then, prices are likely to be driven mainly by technical factors.
The overall recommendation is to buy EURUSD from the support level of 1.0800.
Profit could be taken at 1.0880. A stop loss could be set at 1.0700.
The volume of the opened position should be set so that the value of a possible loss, defined with a protective stop order, does not exceed 2% of your deposit.
This content is for informational purposes only and is not intended to be investing advice.
