The EUR/USD currency pair traded again on Thursday with minimal volatility. So, what were traders hoping for? Daily strong and trending movements? This is sarcasm because the pair has been trading with very low volatility for two weeks now. And when there is no volatility, trading the pair becomes very difficult. Notably, such a movement does not prevent it from maintaining a downward trend in the medium term. The price cannot even firmly establish itself above the moving average. As a result, we see a significant drop in the euro once a week, followed by several days of a flat market.
In principle, the illustration below clearly shows the current level of volatility. If the pair moves from the minimum to the maximum by 50 points, 20 of which are during the Asian trading session, what profit can be expected from intraday trading? Interestingly, the fundamental background this week was quite strong. However, even on the day of the Fed meeting and Jerome Powell's speech, the pair only moved by 87 points. Yesterday, it surprisingly ignored the significant results of the Bank of England's meeting, although it is usually the other way around. But, as we have already mentioned, the market needs to be more eager to trade or buy. The second is a very logical and justified desire.
Today may also not be in favor of the European currency. On the 24-hour TF, the pair almost touched the Fibonacci level of 38.2%, but almost doesn't count. The price may drop a little further to test the level of 1.0609 accurately. Then, a correction is possible, but only if there is a rebound from the mentioned level. Otherwise, we may face downward inertia in the euro, against which we have no objections.
Nagel sees no point in further tightening.
Immediately after the ECB meeting last Thursday, representatives of the monetary committee of this bank began speaking almost every day and in large numbers. This week, there was a day when six or seven speeches were planned. Therefore, a lot of background information was received. If all this information is put together, it becomes clear that most of the monetary committee members support the end of the tightening cycle. Only a few officials have allowed the possibility of an additional rate hike by the end of the year. But it is already clear that they are in the minority.
Yesterday, the head of the Bundesbank, Joachim Nagel, spoke, and even he said that "interest rates should remain high for a long time," not "interest rates should continue to rise." Recall that this is the head of the bank with the strongest economy in the EU. But even it has been struggling and wavering lately, so Nagel's dovish rhetoric is not surprising. Immediately after him, Martins Kazaks spoke, saying that the current level of the key rate is quite satisfactory. According to him, the ECB will make decisions from meeting to meeting. Inflation again shows signs of acceleration as a new rise in energy prices has begun, and there is no talk of lowering rates before 2025. Not a word about a possible rate hike.
Therefore, there is a 95% probability that the ECB has completed its tightening cycle. If you remember, we said a few months ago that the European regulator would not chase the Fed or the Bank of England. During the mortgage crisis of 2007–2008, the ECB rate rose to approximately the current levels. That is, historically, the ECB has not raised rates too high. Well, this is very bad news for the euro. It loses almost its only growth factor. Now, the euro can only hope for the Fed. By the end of the year, the US regulator may start hinting at a softer monetary policy against the backdrop of falling inflation.
The average volatility of the EUR/USD currency pair over the past five trading days as of September 22 is 57 points and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0595 and 1.0709 on Friday. A downward reversal of the Heiken Ashi indicator will indicate a new downward movement phase.
Nearest support levels:
S1 - 1.0620
S2 - 1.0498
Nearest resistance levels:
R1 - 1.0742
R2 - 1.0864
R3 - 1.0986
The EUR/USD pair maintains a downward trend. Short positions can be held with targets at 1.0595 and 1.0498 until the price consolidates above the moving average. Long positions can be considered if the price consolidates above the moving average, with targets at 1.0742 and 1.0864.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both point in the same direction, it indicates a strong current trend.
The moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which the pair will move over the next day based on current volatility indicators.
CCI indicator - its entry into the overbought area (above +250) or oversold area (below -250) indicates that a trend reversal in the opposite direction is approaching.