22.10.202604:19 Forex Analysis & Reviews: Overview of the EUR/USD pair. October 22. Calm Before the Storm

The EUR/USD currency pair was practically immobilized for most of Wednesday. As expected, minor macroeconomic releases attracted no interest, and market leadership clearly no longer belongs to indicators like ZEW indices or U.S. existing-home sales data. All the euro managed to achieve over the past week was a halt to its collapse. The euro fell for a full month, and we repeatedly questioned the rationale for such a move. However, we also said that if, for some reason, the market isn't set on buying the euro, it won't appreciate regardless of what technical analysis or fundamentals say.

In recent days, even the pound sterling is rising! And why is it rising? Yesterday it became known that the UK national debt surpassed $4 trillion. And $4 trillion for Britain is the same as $40 trillion for the U.S. Is the Bank of England preparing for the first monetary tightening? Yes, it is.

Meanwhile, the European Central Bank has already raised rates twice and is preparing for a third tightening. That in no way prevents the market from only selling the euro. French riots and a budget crisis? And the U.S. has no budget problems or constant protests against Donald Trump and his policies?

Thus, we still do not believe the euro is so weak, nor the European economy so bad, that EUR/USD cannot show even minimal gains. In essence, what does the absence of growth after a month-long decline mean? It means traders aren't taking profits on short positions or aren't opening long positions. If shorts aren't being covered, they expect further US dollar strength. The reasons for that do not really matter — they can be purely speculative. Simply put, the dollar is bought because it is rising, and it is rising because it is being bought. That's the whole logic. The problem lies not in geopolitics or the Fed's "hawkish" stance, which, incidentally, noticeably weakened in October.

We also allow for the market being in a "calm before the storm." Next week the ECB and the Federal Reserve will hold meetings, and the following week are the U.S. midterm elections, plus nonfarm payrolls and unemployment reports. Therefore, many market participants don't want to risk opening trades now and later regret it. We fully understand them. It's impossible to predict how the elections will end. The Fed is unlikely to raise its key rate in October, but may signal a firmer stance because inflation is higher than expected. The ECB is also unlikely to hike in October, but euro-area inflation is rising too. Consequently, the ECB is unlikely to adopt a "neutral" or "dovish" stance either. If the market continues to ignore ECB rate hikes, then yes, the dollar could keep rising even toward price parity with the euro. It is unclear how Donald Trump would react, since he wants a weak dollar, but the dollar's course is determined by the market, not Trump.

The average volatility of the EUR/USD currency pair over the last 5 trading days as of October 22 is 58 pips, characterized as "average." We expect the pair to move between 1.1166 and 1.1282 on Thursday. The higher linear-regression channel has turned down, indicating another trend change. The CCI entered the oversold area five times and formed four bullish divergences, warning that the illogical downtrend may be ending. However, the market has so far reacted weakly to technical signals.

Nearest support levels:

S1 – 1.1230

S2 – 1.1169

S3 – 1.1108

Nearest resistance levels:

R1 – 1.1292

R2 – 1.1353

R3 – 1.1414

Trading recommendations:

The EUR/USD pair continues moving downward, but we still view the decline as a correction before a new uptrend. The global fundamental backdrop for the dollar remains negative, but in 2026, geopolitics and then the Fed's hawkish stance provided strong support for the US currency. When price is below the moving average, shorts can be considered, targeting 1.1169 and 1.1108. Above the moving average, long positions are relevant, with targets at 1.1282 and 1.1353.

Explanations for the illustrations:

• Linear regression channels help determine the current trend. If both are directed the same way, the trend is currently strong.
• The moving average line (settings 20,0, smoothed) defines the short-term tendency and the direction in which trading should be conducted now.
• Murray levels are target levels for moves and corrections.
• Volatility levels (red lines) show the likely price channel the pair will trade in over the next 24 hours, based on current volatility indicators.
• The CCI indicator — entering the oversold area (below -250) or the overbought area (above +250) — signals an imminent trend reversal in the opposite direction.