27.01.2023 12:35 PM
EUR/USD. Overview for January 27, 2023

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The EUR/USD currency pair is gradually increasing. This is because nothing has changed over the last day, as we have stated. The present upward trend will not be interrupted even by a deviance of 100 or 150 points from nearby highs. The dollar did, therefore, gain market support yesterday as a result of news from outside, although it was more of a brief respite. The market is still actively buying the euro and essentially paying no heed to the US dollar. We've already stated that we believe the current growth is purely inertial and has no foundation. The pair may not even be able to decline by 150 points during the correction to resume rising later. We are mainly concerned about the current movement's resistance. There would be no doubt if there were solid reasons for the euro to keep rising right now. Only the market estimates for an ECB rate hike of 0.5% and a Fed rate hike of 0.25% next week stand out among the other factors that are currently in play. The rise in the euro/dollar pair may be due only to the high likelihood of the start of a decline in the disparity between the ECB and Fed rates.

But regrettably, the market will not account for the likelihood that the American economy will be able to avert a recession. Or the reality that, unlike the ECB, the Fed will inevitably hike the rate over 5%. Of course, you could always argue that the euro fell too much last year and that the present growth reflects a reversal of the downward trend worldwide. But keep in mind that there were many factors contributing to the euro's decline last year. But there aren't as many factors supporting its development now. At the same time, we must keep in mind that the pair's sales plan is pointless if there are no suitable technical signs. The market has unlimited time to keep expanding inertia. Naturally, we think that things might alter next week, but this is still a fundamental premise that needs to be verified.

The dollar was overlooked by the market as usual.

It is impossible to use any other word to describe yesterday's strengthening of the US dollar. The fourth-quarter GDP data, which came in at 2.9% q/q, exceeded expectations. The report on long-term goods orders showed double-over-expected growth of 5.6%. The dollar might increase even more, although we were aware of the reports' low level of significance. What information or occasions must occur for the US dollar to strengthen against the euro? Even if such large-scale studies that unequivocally demonstrate the health of the US economy and allow the Fed to raise its key rate for as long as necessary cannot cause it to strengthen? What can we, therefore, anticipate from next week, when the Fed will once again pause in its tightening of monetary policy?

The dollar's only current source of security is the likelihood that market participants will eventually tire of buying euros and start to fix profits on them. However, it should be kept in mind that the ECB is very likely to hike the rate by 0.5% for two more sessions, which might happen as soon as next week. Therefore, if this is the only aspect that traders focus on, the euro may experience growth before the ECB meeting in March. However, given that US inflation is still declining quickly, the Fed may decide not to hike rates at all in the upcoming months. Again, if all other factors are eliminated, the euro's value can increase until the ECB decides not to increase the rate. Although such a scenario seems absurd to us, it cannot be fully ruled out given the market's propensity for buying. The gloom around US currency is getting heavier. Although last year was a success in a string of equally successful years, the past few months can be viewed as a "technical correction" over the long run because the dollar is falling unfairly from a fundamental standpoint.

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As of January 27, the euro/dollar currency pair's average volatility over the previous five trading days was 70 points, which is considered "normal." So, on Friday, we anticipate the pair to fluctuate between 1.0819 and 1.0961. The Heiken Ashi indicator's upward reversal will signal the restart of the upward momentum.

Nearest levels of support

S1 – 1.0864

S2 – 1.0742

S3 – 1.0620

Nearest levels of resistance

R1 – 1.0986

Trading Suggestions:

The EUR/USD pair is still moving upward. In the case of a price recovery from the moving average or when the Heiken Ashi indicator reverses higher at this time, long positions with targets of 1.0961 and 1.0986 might be taken into consideration. After the price is locked below the moving average line, you can start opening short trades with a target of 1.0742.

Explanations for the illustrations:

Determine the present trend with the use of linear regression channels. The trend is now strong if they are both moving in the same direction.

Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction.

Murray levels serve as the starting point for adjustments and movements.

Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.

A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.

Paolo Greco,
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