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On Thursday, the EUR/USD pair unexpectedly collapsed. This does not mean the dollar strengthened enough to start a new local "dollar trend." However, this week's movements have been very mixed and illogical, with the market ignoring many factors unfavorable for the U.S. currency. As noted, the dollar had formal reasons to fall yesterday. The eurozone unemployment rate unexpectedly rose to 6.3%, which could have triggered the euro's decline. Yet, in the U.S., a government shutdown has just begun, and the labor market once again showed weakness. In our view, these two factors are far more important than the EU unemployment rate. It is also worth noting that dovish expectations regarding the Federal Reserve's monetary policy continue to grow. The market is now nearly 100% certain that the Fed will cut rates twice before the end of the year. However, for now, all these factors are being ignored, which makes the movements appear illogical.
On the 5-minute timeframe, only one trading signal formed on Thursday—but it was a strong one. For 5 hours, the pair consolidated around the 1.1745–1.1754 resistance zone. When the rebound finally occurred, the price moved about 50 pips in the right direction. Although the pair didn't reach the nearest target zone of 1.1655–1.1666, novice traders could still have closed the trade manually in profit.
On the hourly chart, EUR/USD continues to display a downward trend and has yet to break above the trendline. Fundamentally, the backdrop for the dollar remains weak, so we do not expect sustained strength in the U.S. currency. As before, the dollar can only rely on technical corrections, one of which we are currently seeing.
On Friday, the EUR/USD pair will likely trade within the 1.1745–1.1754 zone again. A rebound from this zone is a new reason to open shorts targeting 1.1666. A breakout above this zone would allow for more logical longs targeting 1.1808.
On the 5M timeframe, key levels to watch: 1.1354–1.1363, 1.1413, 1.1455–1.1474, 1.1527, 1.1571–1.1584, 1.1655–1.1666, 1.1745–1.1754, 1.1808, 1.1851, 1.1908, 1.1970–1.1988. On Friday, Christine Lagarde will speak in the EU. In the U.S., Non-Farm Payrolls and unemployment data were initially scheduled but have been removed from event calendars due to the shutdown. Thus, the only report of interest in the U.S. today will be the ISM Services PMI.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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