EUR/USD hourly chart
In the early trade on Monday, the EUR/USD entered the phase of a weak upward correction. In our review last night, we mentioned that short deals remained relevant and we needed to wait for the correction to start and for the MACD indicator to return to the zero level. So, we need this strong sell signal to open new deals. So far, everything is happening in line with our expectations since an upward correction has started and the MACD indicator is returning to zero level. At the same time, novice trades can make use of the descending channel and its lower boundary where trading activity is taking place now. The price can even continue its correction up to the level of 1.1700, which is quite far from the current levels. We would also like to remind novice traders that the main reasons for the euro/dollar pair's decline are technical rather than fundamental. We mentioned this earlier in our articles on fundamental analysis. At the same time, the fundamental background is still an important factor. However, in the US it has not changed much in recent weeks. Therefore, the rise in the US dollar against the euro could not be attributed to positive political or economic news, as well as epidemiological reports.
The fundamental background remains rather challenging for the US currency. The coronavirus situation in the US is not getting any better, as around 40 to 45 thousand new cases appear daily in the country. What is more, there is still no vaccine. Even if the vaccine is developed in the near future, a mass vaccination of the US citizens is expected not earlier than in mid-2020. Furthermore, there is no improvement is the economic recovery. Last week, Steven Mnuchin, the US Treasury Secretary, and Jerome Powell, the Fed Chairman, reiterated in Congress that the US economy needs a new stimulus package. What is more, the topic of the upcoming presidential elections seems to be number one in the country now. And, unfortunately, it overshadows all other topics. Meanwhile, the struggle for power between Donald Trump and Joe Biden continues. According to many businessmen, economists, and political scientists, Donald Trump is a more dangerous president for the United States. They think that his manner of governing the country and the consequences of it are destructive for the US. Thus, most market participants are wary of investing in the US dollar and the US economy ahead of the elections. Therefore, we think that the US dollar may rise to the 1.13 level which is approximately a 50% retracement from the 1.0730 level. However, from a fundamental point of view, there is little reason for such growth. On Monday, no major events or macroeconomic reports are scheduled for release.
Possible scenarios for September 28
1) We still do not recommend buying the pair at this time since there is a clear downtrend in place. Trading against the trend is basically not a good idea. Thus, you may consider placing long positions only when the price settles above the descending channel or when a new uptrend supported by a trendline or other channel is formed.
2) Sell deals remain relevant today despite the fact that the pair is trading near the lower boundary of the descending channel. This means that the chances for an upward correction are very high. As we know, such onward movements in one direction, which we have been observing since September 21, can be very long-lasting. That is, there may be no upward correction to the upper boundary of the channel. Nevertheless, we still expect a weak correctional movement. On Monday, you can open new short positions with the targets at 1.1600 and 1.1570 when the MACD indicator returns to zero level and generates a new sell signal, that's is, turns to the downside.
On the chart
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trendlines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator (14, 22, and 3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend patterns (channels and trendlines).
Important announcements and economic reports that you can always find on the economic calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommend trading as carefully as possible or exit the market in order to avoid sharp price fluctuations.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
The material has been provided by InstaForex Company - www.instaforex.com