4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 28.0986
The EUR/USD currency pair turned up on Thursday and began a new round of upward movement. So, at the moment, it looks as if the downward correction is complete. We remind traders that after a month-long period of growth, which is visible in the illustration, the euro/dollar pair was corrected for about a week. However, all this time, we insisted that this is just a correction, which means that the upward movement will be resumed. Thus, it seems that on Thursday, traders again rushed to buy the European currency. Or a new batch of freshly printed dollars from the Fed just flooded into the market. We have said many times that we believe that the most important factor for the dollar exchange rate is the number of new trillions of dollars introduced into the US economy in 2021. So far, this figure is about $ 7-8 trillion if Joe Biden's two new stimulus programs are approved by Congress, in both chambers of which the Democrats have an advantage. Thus, such a completely wild amount of dollars can not but affect the exchange rate of the US currency.
Consequently, in almost any case, the dollar will continue to fall in price this year. Of course, at any time, everything can change in the foreign exchange market. It should be understood that this is a market, and many factors work here, as well as a huge number of players that affect supply and demand. Thus, if tomorrow all the major players for absolutely any reason begin to get rid of the European currency, the dollar will become more expensive. However, there will be few visible factors for this. Thus, we want our readers to perceive what we want to convey to them correctly. The dollar is highly likely to continue its global downward trend in 2021, but you can never know with 100% probability what will happen tomorrow. Accordingly, the current hypothesis remains relevant as long as the current fundamental background remains unchanged.
Although the new growth of the European currency looks very technical, this week, many traders and analysts were almost in a panic about the Fed's inaction and Janet Yellen's statements. Recall that the Fed held a meeting last week, and some traders expected to hear from Jerome Powell hints at the curtailment of the quantitative stimulus program in 2021. They say that the US economy is recovering at a good pace, and inflation is growing. What else is needed to start removing the stimulus? But Powell disappointed traders, as he did not report anything new and made it clear that the Fed will continue to buy bonds in the near future and does not think about any cuts or endings of the QE program. It is what Powell has been saying for the last six months. The same goes for inflation. Powell has repeatedly said that inflation will be allowed to go above 2% to compensate for periods of low price pressure. Periods of low inflation have been very long. The Fed may not contain such high inflation for a year. However, over the past week, market participants have been discussing the issue of high inflation, the prospects for inflation, and the Fed's inaction on this issue. When US Treasury Secretary Janet Yellen spoke a couple of days ago and inadvertently said that the Fed would probably have to raise the key rate to avoid overheating the economy, the market began to panic, not reflected on the charts of currency pairs.
Markets seem to have forgotten that Janet Yellen was the head of the Fed but currently holds the post of Treasury Secretary. It means that the Fed has nothing to do with rates and cannot have anything to do with them. Recall that the Fed is not controlled by the US government, the president, or the Finance Minister. Earlier, Jerome Powell was repeatedly pressured by Donald Trump, who believed that if he needed the rates to be lower, then Powell should take and lower the rates. Janet Yellen just expressed her opinion Jerome Powell has been saying for six months that the stimulus programs will remain in place until the economy fully recovers. The last meeting of the Fed showed that most members of the monetary committee expect a rate hike no earlier than in 2023. Thus, there are no "hawkish theses" for the dollar right now. The only factor that can theoretically support the US currency is the high growth rate of the US economy. However, it should be understood that this economic growth is artificial. It is backed by huge cash injections, and its goal is to prevent a gap in wealth and economic growth between China and the United States. But the factor of pumping the US economy with trillions of dollars is just a factor that will provoke price growth and depreciation of the national currency. Therefore, we do not expect any other development than the fall of the US dollar.
Based on all of the above, the upward movement of the euro/dollar pair may continue to 2.5-year highs near the level of 1.2350. And this is far from the ultimate goal for the pair in 2021. We used to calculate that the minimum target for the euro for the current year is 1.3000. Only the weakness of the last round of correction is confusing now. After all, the pair went up 450 points in a month, and the correction took five days and amounted to only 160 points. However, this may also be enough for the uptrend to resume.
The volatility of the euro/dollar currency pair as of May 7 is 72 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1978 and 1.2122. A reversal of the Heiken Ashi indicator downwards will signal a new round of downward correction.
Nearest support levels:
S1 – 1.2024
S2 – 1.1963
S3 – 1.1902
Nearest resistance levels:
R1 – 1.2085
R2 – 1.2146
R3 – 1.2207
Trading recommendations:
The EUR/USD pair has consolidated below the moving average and continues its downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1963 and 1.1935 until the Heiken Ashi indicator turns up. It is recommended to consider buy orders if the pair is fixed above the moving average, with targets of 1.2085 and 1.2146.
