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Yesterday, EUR/USD reversed in favor of the US dollar and settled below the ascending trendline. So, traders' sentiment has shortly turned bearish. I am afraid that this turn may be the start of another rapid plunge of the euro. Even though the recent gains were impressive, they are still not enough to fully cancel the downtrend on the daily chart. A hold below the trend line indicates that the euro may decline for some time. A drop to the level of 0.9782 will mean that the pair has just 200 pips left to reach its 20-year low. Obviously, we can't talk about any uptrend. While the pound showed a really strong rise indicating a change in the trend, the euro has nothing even close to this.
Meanwhile, the US dollar has more news to celebrate. Economists at Goldman Sachs predict US GDP to decline to 0.9% in 2023 from 1.6% in 2022. Therefore, a recession will be visible only in quarterly reports. Meanwhile, reports on a yearly basis are considered more important. So, in this regard, the US economy may show no signs of a recession even though a slight downturn is recorded.
The latest unemployment report showed a 0.2% rise. All in all, the data on the labor market was mixed. The Nonfarm Payrolls report that is due on Friday will either dispel my fears or confirm them. If the number of new jobs is high, then the US economy has nothing to worry about at least in the coming months. A slight decline is not a recession. Besides, Jerome Powell and the Fed may avoid this scenario thanks to rapid growth in the previous year.
EUR/USD moved to the upside on the 4-hour chart and headed towards the upper line of the descending trend channel. The existing channel reflects the bearish sentiment of the market which makes all the forecasts about the euro's strong uptrend highly unreliable. A firm hold above the channel will validate the further rise of the pair towards 1.0173 and 1.0638.
Commitments of Traders (COT):
Last week, traders opened 2,172 long contracts and 1,824 short contracts which means that the sentiment of large market players has not changed over the week. The overall amount of long positions is 208,000 while the amount of short positions is 174,000. Therefore, we can say that the sentiment of large market participants has become more bullish although the euro is still struggling to develop a proper uptrend. In recent weeks, there were some chances for the euro to recover. However, traders are hesitant to buy it and prefer the US dollar instead. Therefore, I would advise you to focus on the main descending channels on the H1 and H4 charts. The pair has overcome the channel on minor time frames and will attempt to do the same on higher time periods. It is also recommended to monitor geopolitical news as it tends to greatly affect the market sentiment.
Economic calendar for US and EU:
EU – Retail Sales (09-00 UTC).
EU – ECB Publishes Account of Monetary Policy Meeting (11-30 UTC).
US - Initial Jobless Claims (12-30 UTC).
On October 6, the economic calendars in both the US and EU have several events to report. I think that none of these reports will have an effect on traders. The impact of the information background on the market can be very weak today.
EUR/USD forecast and trading tips:
I would recommend selling the pair when the price rebounds from the upper line of the channel on the H4 chart. The target should be the level of 0.9581. Another option is to sell when the price settles below the trendline on the 1-hour chart. I recommend buying the pair when the quote settles firmly above the upper boundary of the channel on H4 with the target at 1.0638.
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