4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 112.3572
On Friday, July 9, the EUR/USD currency pair continued to trade in the usual mode. However, it managed to overcome the moving average line by the end of the day, which changed the current trend to an upward one. Recall that our main scenario for the development of the event until Friday was the option with a decline in quotes to the level of 1.1700 as part of a new round of corrective movement on the 24-hour timeframe, after which - the resumption of the global upward trend above the 23rd level. However, the last two days of last week showed that the price may not reach the level of 1.1700. At least, at the moment, when the price is fixed above the moving average, it is already worth considering an option with a further move to the north. And it is worth returning to the option with a possible fall to the level of 1.1700 if the price returns to the area below the moving average line. We would like to remind you that in the medium and long term, in any case, we expect a resumption of the upward trend, as we still believe that global fundamental factors are working against the US currency. It's just that the pair cannot constantly move in one direction. Sometimes corrections are needed. And if we are talking about global trends, then corrections can take several months. Now we are talking about such a correction and it can already be completed. Consequently, we continue to expect a resumption of the fall of the US dollar, as inflation in the United States continues to increase and significantly exceeds the European one. The US authorities and the Fed continue to pour huge amounts of money into the American economy, inflating the money supply. Of course, there is an opinion that the US currency will continue to rise slightly in the coming months based on the factor of higher growth rates of the US economy. But we believe that this will not happen, since the US GDP has been growing faster than the European one for several quarters, and the US dollar continues to be under pressure from the markets.
What does the new week have in store for traders and what movements should we expect? It should be noted right away that macroeconomic statistics continue to be ignored by the markets in most cases. Reports are processed selectively and not always logically. Fundamental information from the ECB and the Fed, as well as personally from Christine Lagarde and Jerome Powell, does not always arouse any interest among traders at all. However, we have already said repeatedly that the heads of central banks cannot constantly surprise and provide new important information. In principle, the positions of the ECB and the Fed are quite clear. The Fed is going to start discussing the curtailment of the quantitative stimulus program in the near future, and next year it may start raising rates. The ECB continues to stimulate the economy with PEPP and QE programs, but at the same time it cannot please the markets with high recovery rates, and the latest statements of Christine Lagarde were more "dovish" than "hawkish". The European Union is not even thinking about ending incentives or raising rates yet. Thus, the ECB is likely to start tightening monetary policy at least a year later than the Fed. Even the inflation figures show that the European economy is suffering more than it is recovering. Barely reaching the level of 2%, the indicator immediately began to roll back down. And, from our point of view, it may already decline in the next months, because all the heads of the Central Bank synchronously stated that the jump in inflation would be temporary, and there has been an increase in inflation everywhere in the last few months because these months had a very low "base" in 2020. Thus, the change of the ECB's inflation target from "slightly less than 2%" to "stable 2%" does not look very serious now. For most of the last decade, the European Union has not been able to achieve a stable 2% inflation. And weak inflation slows down economic growth. So it turns out that no matter how you look at it, the European Union still lags behind the United States in economic terms. But the US currency does not receive any special dividends from this.
In the new week, all the attention of traders will be focused on the inflation reports that will be published in the EU, the US, and the UK. It is expected that both in the US and the European Union, the consumer price index will slow down slightly by the end of June. In America – up to 4.9% y/y, and in the EU - up to 1.9% y/y. Thus, if these forecasts are confirmed, it is unlikely that traders will react to these data. However, there may be surprises. For example, if inflation continues to accelerate in the United States, and the European Union, for example, it will suddenly collapse down. Recall that the growth of inflation for the economy is generally considered a negative factor. Roughly speaking, inflation devalues money, so an increase in inflation should negatively affect the exchange rate. However, in our case, the reaction of traders to these reports can be almost any. Everything will depend on how much the actual value will not correspond to the forecast value and how market participants themselves interpret this data. Recall that a couple of weeks ago, a strong Nonfarm Payrolls report provoked the fall of the dollar. Also, a report on industrial production in the EU, the producer price index in the United States, applications for unemployment benefits in the United States, industrial production in the United States, and retail trade in the United States will be published next week. We believe that only the latest retail sales report on Friday can attract attention. The rest - if they cause any reaction from traders, it will be no more than 15-20 points, which will be poorly noticeable even on a 5-minute timeframe.
In general, the most interesting question of the new week will be "have the bears had enough of the pair's sales?". We believe that there may well be another round of downward movement. However, on the hourly timeframe, the quotes of the euro/dollar pair overcame the descending trend line, and on the 4-hour timeframe – the moving. Therefore, there is a high probability that the upward movement will continue this week. As for volatility, it will likely remain weak. Thus, if the pair set a course for the 23rd level, then overcoming this distance may take a month and a half of time.
The volatility of the euro/dollar currency pair as of July 12 is 63 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1814 and 1.1940. A reversal of the Heiken Ashi indicator downwards signals a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.1841
S2 – 1.1780
S3 – 1.1719
Nearest resistance levels:
R1 – 1.1902
R2 – 1.1963
R3 – 1.2024
Trading recommendations:
The EUR/USD pair has overcome the moving average and will try to continue its upward movement. Thus, today it is recommended to stay in long positions with targets of 1.1902 and 1.1940 until the Heiken Ashi indicator turns down. It is recommended to open sell orders now no earlier than fixing the price below the moving average line with targets of 1.1780 and 1.1719.
