The European currency, paired with the US dollar, tried to adjust last week. However, it can't be said that it succeeded. After the results of the Fed meeting were summed up, the pair's quotes fell by 280 points. During the week that ended, the European currency managed to rise in price by 100 points. If we take the entire last round of the downward movement, it is 420 points, and the correction is still the same 100 points. Thus, it is not yet possible to conclude that the upward correction is completed. Most likely, it will continue next week. At the same time, there are generally significant doubts that the US currency will continue its growth. We have already said that only the global technical factor speaks in favor of further dollar growth. It is a possible new round of corrective movement to the previous local minimum within the framework of an upward trend that has been going on for a year and a half. Thus, the dollar can count on further strengthening. However, there are still few fundamental factors that could support it for a long distance. Even after the results of the ECB and Fed meetings were summed up, the overall picture of the situation has not changed. No changes were made to the monetary policy in the European Union and the United States. The only change that can be noted is the phrase of Jerome Powell that the Fed "may start discussing the curtailment of the quantitative stimulus program in the near future." However, it is unknown when this discussion will begin, and it is unknown how it will end. Yes, the probability of tightening monetary policy in America is growing, but again, this is not the immediate prospect. It is not going to happen in the coming months. Therefore, in principle, it is quite difficult to rely on the judgment that someday the Fed will raise the rate and stop printing money in hundreds of billions when buying US currency. That is why we still do not see any notable prospects for the US currency. The fact that the American economy is recovering much faster than the European one is offset by the fact that America is pouring much more money into stimulating the economy, which inflates the money supply and provokes a strong increase in inflation. Thus, from our perspective, the US currency can expect maximum strengthening to the 17th level or so.
What should I pay attention to next week? First, it should be noted right away that macroeconomic statistics quite often continue to be ignored by the markets. Secondly, in recent weeks, the US dollar has been strengthening not because of macroeconomic statistics. Third, it isn't easy to expect any new information from Jerome Powell and Christine Lagarde that could affect the pair's movement globally. Thus, all the fundamental and macroeconomic events of the coming week will continue to have only a local impact on the euro/dollar pair, if they have it at all. On Monday and Tuesday, no important publications are planned in the European Union and the States. On Wednesday, a fairly important inflation report will be published in the EU, and a report from ADP on changes in the number of employees in the private sector will be published in the US. On Thursday, the unemployment rate is in the EU, and the ISM index of business activity in the manufacturing sector is in the US. From our perspective, all these reports will be ignored by the market, or they will provoke a minimal reaction of 20-30 points. The fact is that business activity in both the United States and the EU is already high after the crisis. The unemployment rate is not the most important macroeconomic indicator. The ADP report is processed by the markets very selectively, and everything here will depend on the discrepancy between the forecast value and the actual one. Inflation in the EU is still quite low compared to American inflation. Of course, you should not completely lose sight of these publications. Still, under certain conditions, traders can work them out. However, the probability of this is small. Only on Friday, really important reports will be released in the States, or rather a report. We are talking about Nonfarm Payrolls, which will now attract even more attention since Jerome Powell made it clear in his recent speeches that the Fed is most interested in the recovery of the labor market right now, and it is ready to ignore inflation. The last two reports on Nonfarm turned out to be weaker than forecasts, so now the indicator can still meet traders' expectations. Thus, we believe that if we expect a strong movement, then next Friday, reports on unemployment and average wages will traditionally be ignored. ECB President Christine Lagarde is also scheduled to speak on Tuesday and Thursday, but we have already said that it is unlikely that she will please the markets with any new information. Thus, it is likely that 3 out of 5 trading days next week will again be held in minimal volatility. As this can be seen in the illustration below, since last Friday, the pair's quotes stood in one place, and the day's volatility was about 50 points.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart is very clear. A new round of downward movement has begun within the framework of an upward trend, but the pair has been desperately trying to correct in the last few days. At the moment, it is located slightly above the critical line and slightly below the Ichimoku cloud. Thus, the prospects for the continuation of the upward correction are slightly higher than for the resumption of the downward movement. Also, there is almost a flat on the 4-hour timeframe, and the Ichimoku indicator lines do not work well in the flat. Therefore, it may not be the worst option to trade next week on the hourly timeframe and below.
Explanations to the illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. Take Profit levels can be placed near them.
Ichimoku indicators, Bollinger Bands, MACD.
