4-hour timeframe
Technical data:
The upper channel of linear regression: direction - up.
The lower channel of linear regression: direction - up.
The moving average (20; smoothed) - up.
CCI: 183.6616
The EUR/USD currency pair ended yesterday, as well as night trading, with very impressive growth. The reason for this behavior of the currency pair could be only one - namely, the meeting of the Fed, summing up its results, the publication of macroeconomic forecasts of the regulator. And looking at the chart of the euro/dollar pair, it seems that the Fed lowered the rate and announced the restart of the QE program yesterday. However, things are quite the opposite. The Fed meeting, as we wrote in yesterday's articles, turned out to be passable. The rate was not changed, no word was said about the quantitative easing program, all macroeconomic forecasts remained at the same levels, and Jerome Powell's rhetoric remained unchanged and was neutral. Thus, based on what the European currency rose in price, the day before ignoring other macroeconomic reports, and yesterday without paying attention to the important report on inflation in the States, it is difficult to say.
So, the forecasts for US GDP for 2019 remained at 2.2%, for 2020 - 2.0%. In the next two years, the Fed expects a slight slowdown in growth to 1.9% and 1.8%, respectively. The forecast for core inflation also remained unchanged. In 2019 - 1.5%, in 2020 - 1.9%, and in 2021 - 2.0%. The forecast for the unemployment rate was reduced to 3.6% for 2019, and to 3.5% for 2020. Market participants may have reacted by selling off the US dollar when they learned that the Fed expects a slight slowdown in the economy for the period 2020-2022, but we believe that this is not the reason. Firstly, these are just forecasts; their regulator can correct them 8 times a year, at each of its meetings. Secondly, much more important information, namely on inflation in November, which accelerated to the target 2.0% y/y, was completely ignored by traders. And now the question is: what is more important for the US dollar now, the forecast for GDP and inflation for 2021 or the current value of inflation?
Let's pay attention to the speech of Fed Chairman Jerome Powell. Perhaps it is the reason for the fall of the US currency? Powell said household spending is still strong, inflation remains below 2% in the medium term, the FOMC expects inflation to rise above 2%, rate cuts have "worked" as needed and pressure on money markets has been more subdued in recent weeks. As a summary, Powell stated that "monetary policy is in good shape." That's the kind of rhetoric we were talking about yesterday morning. So it's not even about Jerome Powell's performance.
The general conclusions of the current meeting of the Fed are as follows. First, the Fed does not intend to change monetary policy in the coming months, and according to some experts and analysts, in the coming years. The Fed sees the results of a three-fold rate cut and is pleased with the current state of the economy and monetary policy. Secondly, everything will depend in the future on a lot of factors that are now simply impossible to predict. For example, from the escalation/de-escalation of the trade war between China and the United States (by the way, on December 15, we will know whether Donald Trump will introduce new duties against Beijing), which greatly affects the world economy, the US economy, and the EU economy. Thus, if macroeconomic indicators, no matter what, begin to decline and slow down, the Fed will certainly take an active position again and begin to intervene. But there is no immediate need for Fed intervention. Especially considering the latest macroeconomic reports from the US.
Based on the above, we believe that the market reaction to yesterday's events was completely logical and unreasonable. From a technical point of view, the upward trend can continue as long as you want. But the current upward movement contradicts the fundamental background of the euro/dollar pair. At the moment, the quotes came to the Murray level of "5/8" - 1.1139 and show no signs of the beginning of a downward correction.
The average volatility of the euro/dollar currency pair increased due to yesterday and is now 48 points per day. The average volatility over the last 30 days is 42 points. Thus, the channel in which the pair can move today is limited to the levels of 1.1080 and 1.1176. Today, during the day, the results of the ECB meeting will be summed up, as well as several important macroeconomic reports in the European Union will be published. Thus, traders can still expect volatility greater than 50 points per day.
Nearest support levels:
S1 - 1.1108
S2 - 1.1078
S3 - 1.1047
Nearest resistance levels:
R1 - 1.1139
R2 - 1.1169
R3 - 1.1200
Trading recommendations:
The euro/dollar pair continues its upward movement. Thus, it is now relevant to buy the euro currency with the targets of 1.1169 and 1.1176 before the reversal of the Heiken Ashi indicator down. The fundamental background is not on the side of the euro, but before the reversal of the indicator Heiken Ashi down, the upward movement can continue, despite it. It is recommended to buy the US currency not before traders cross the moving average line with the first target of 1.1047.
In addition to the technical picture, fundamental data and the time of their release should also be taken into account.
Explanation of the illustrations:
The upper channel of linear regression - the blue lines of the unidirectional movement.
The lower channel of linear regression - the purple line of the unidirectional movement.
CCI - the blue line in the indicator window.
The moving average (20; smoothed) - the blue line on the price chart.
Support and resistance - the red horizontal lines.
Heiken Ashi - an indicator that colors bars in blue or purple.
Possible variants of the price movement:
Red and green arrows.
