4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 104.3424
The EUR/USD currency pair on Thursday, February 25, continued its upward movement. For a couple of days, traders were in doubt but eventually returned to the original plan. They assume a long sell-off of the US currency, which began 11 months ago and may well continue throughout 2021. Moreover, the euro/dollar pair has adjusted perfectly in 2021, falling by about 350 points, which is half of the last upward movement. That's what we've been talking about in the last few weeks. On the 24-hour timeframe, two strong buy signals were formed at once: a price rebound from the 50.0% Fibonacci level and a rebound from the Senkou Span B line of the Ichimoku indicator. Thus, we have long expected that the long-term upward movement will resume. As for the fundamental factors, everything is as simple as five cents. The Fed and the US Treasury continue to pour trillions of dollars into the US economy, which simply increases the supply of US currency in the markets. People simply have more money, so they start spending more. Of course, as conceived by Congress and the US central bank, it is this increase in spending that leads to a faster economic recovery. And it is difficult to disagree with this. The American economy is indeed recovering very quickly from the crisis caused by the coronavirus pandemic. Although Jerome Powell continues to say that the path to full recovery is very long and thorny. US GDP is growing at a much faster rate than European GDP. But at the same time, the US national debt is also growing. However, the "national debt" of the United States is just a byword. Let's give a banal example: the Fed prints a trillion dollars and throws them from a helicopter (in the economy, there is even such a concept as "helicopter money"). Formally, the national debt has grown by 1 trillion, but in fact, to whom does the Fed owe this trillion dollars? To themselves? Another thing is if money is raised from the markets by placing treasury bonds, then these bonds will need to be extinguished or to pay off debts. So, of course, we cannot assume that the Fed and the US Treasury simply and easily print money all the time. It should be understood that turning on the printing press is an emergency measure that is not used in any situation to solve any problems. However, the pandemic crisis is the case when it was necessary to turn on the machine and we have seen graphs of changes in the aggregates of the money supply M0-M3. According to these graphs, in 2020, the money supply in the United States grew by at least one and a half times. Thus, the more dollars are poured into the economy, the more the US dollar will devalue in the long run.
Therefore, in principle, all the stories of Jerome Powell in the US Congress about inflation and employment, the economic recovery, the digital dollar, and so on did not have any special significance for the foreign exchange market. It's like tabloid reading in the current extreme conditions. We have already said that in normal times, factors such as the speech of Jerome Powell or Christine Lagarde, macroeconomic statistics, political crises - have an impact on the economy, on the exchange rate of a particular currency. At a time when trillions of dollars are pouring into the US economy and this process is likely to continue in 2021, all the macroeconomic statistics do not matter much. All of Powell's concerns and calls for more aid to the economy are just interesting bedtime reading. The main factor remains one – "the amount of money that will still be poured into the US economy". Of course, we should not forget that the European Union also has a central bank and it also knows how to print money, however, according to the same reports on the aggregates of the money supply, in the European Union, this opportunity is used much more cautiously. According to statistics, in the European Union, the money supply in 2020 increased by 10-15%. Thus, the euro currency continues to remain in a deficit in comparison with the US dollar. Therefore, it continues to become more expensive.
Separately, we should talk about inflation. Recently, many experts have begun to say that a huge cash injection into the economy will spur inflation, it will rise to 2% or higher, and that's where life will begin. To be more precise, the Fed's monetary policy will tighten, and then the US dollar will begin to rise in price. The illustration shows the change in the US consumer price index over the past 10 years. The graph clearly shows that the growth of inflation was observed in 2010-2012 and 2015-2019. At the same time, in 2015-2019, inflation grew from a value of 0% y/y and rose to 2.7% only by the beginning of 2018. The Fed started raising rates at the very beginning of 2016. That is, in other words, rates began to rise as soon as inflation rose from zero to one. Now, inflation is just over 1%, and Jerome Powell is openly saying that the new approach to inflation will allow it to remain above the 2% target for some time to compensate for a period of low inflation. That is, even with the exit to 2% inflation, the Fed will not rush to raise the rate. Accordingly, the program of asset repurchase from the market will not be completed. Accordingly, in 2021, there is no sense at all to expect a tightening of monetary policy in the United States. Consequently, the US dollar is deprived of possible support from the Fed. And its future will depend solely on how many more dollars will be poured into the economy.
The volatility of the euro/dollar currency pair as of February 26 is 69 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2119 and 1.2257. A reversal of the Heiken Ashi indicator to the top may signal the resumption of the upward movement.
Nearest support levels:
S1 – 1.2146
S2 – 1.2085
S3 – 1.2024
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading recommendations:
The EUR/USD pair has started a new round of corrective movement. Thus, today it is recommended to open new long positions with the targets of 1.2207 and 1.2257 in the event of a price rebound from the moving average line or a reversal of the Heiken Ashi indicator to the top. It is recommended to consider sell orders if the pair is fixed below the moving average with targets of 1.2119 and 1.2085.
