Hello, dear traders!
Yesterday, the US dollar strengthened against the euro. From the technical point of view, there is nothing surprising here. We will turn to the chart in a while. And now let's discuss the current market sentiment and the upcoming events in the economic calendar.
Yesterday, the market was extremely volatile. Major stock indexes fell by more than one percent at first, but then recouped some of their losses. It is a common fact that risk appetite usually decreases when stocks drop. As a result, investors turn to safe-haven assets, including the greenback. Meanwhile, the euro was brought under pressure due to the deterioration of German Ifo Business Confidence. All three indicators fell more than expected and came out in the red zone. On top of that, the euro was incurring losses amid a tough COVID-19 situation in several European countries and the introduction of stricter lockdown measures, which also has an adverse impact on the region's economy.
Another important event is the meeting of the Federal Reserve Board. The outcome of the meeting will become known tomorrow. The Fed is likely to announce its decision on interest rates followed by Governor Jerome Powell's press conference. As expected, the most influential and powerful central bank in the world will not make any drastic changes in the course of its monetary policy. The key interest rate will remain in the 0.00-0.25% range. Moreover, the American regulator will continue to support its economy through a large-scale stimulus program. Today, no macroeconomic reports are set for release in Europe. The United States will present its S&P/Case-Shiller Home Price and Consumer Confidence reports. The data will be published during the North American session.
As it was said yesterday, a small bullish candlestick with a large upper shadow as of January 22 could have indicated that bulls no longer could continue the upward movement. As a result, the trend was supposed to reverse downward. In fact, everything happened exactly the way we had expected. Bulls tried to extend the rally. However, the price reached the level of 1.2182, reversed downward and closed at 1.2137. Today, the pair is trading in the downward trend. Currently, EUR/USD is trading close to 1.2126. In case, the downward trend goes on, bears will possibly drop the quote below yesterday's low of 1.2115. In such a case, the nearest target will be seen at 1.2109. This is the 50-day moving average (MA) which is still offering strong support for the pair. Slightly lower, at 1.2090, there is the upper border of the Ichimoku Cloud. Thus, 1.2115-1.2090 will be seen as a strong and key support. To resume the upward trend, the price should close above 1.2189 - the high of January 22 - and break through 1.2200 where there is the blue Kijun line of the Ichimoku Cloud indicator.
As for the hourly chart, the pair has consolidated below the 89- and 200-day exponential moving averages (EMA) and the 50-day MA. All the three moving averages are located in the area of 1.2145-1.2156. Thus, if the price attempts to rise, it may encounter strong resistance from the above mentioned moving averages and reverse downward. If these assumptions turn out to be accurate, one should consider selling EUR/USD in this price zone. According to the chart, the price is trying to break through the purple support line of 1.2054-1.2076. In case of a breakout, the price will consolidate below the line of three consecutive hourly candlesticks. One should consider selling the pair on a pullback to this line. Options for buying the currency pair are limited. Thus, it will be possible to enter long in the price zone of the 1.2076-1.2054 support where there are also two low levels from January 20 and January 18. Apart from that, one should consider buying EUR/USD after a false breakout at the purple support line or when a bullish candlestick appears.
Have a nice trading day!
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