4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -246.4124
On Thursday, June 3, the EUR/USD currency pair finally showed the movement expected from it for a long time. And most importantly, traders finally really responded adequately to the macroeconomic background. It hasn't happened in a while. However, the ADP report on changes in the number of people employed in the United States provoked a rather powerful downward movement, at least by 80-90 points. The US dollar was also supported by reports on business activity in the US services sector. It should be the reaction to macroeconomic statistics so that it has the right to be called a "reaction." Unfortunately, this is almost an isolated case at this stage. Traders can find all the previous ADP reports themselves and see what the markets' reaction was in the past times. Spoiler: none. Thus, for the time being, as we have said more than once, traders continue to ignore the macroeconomic statistics and the fundamental background. The evidence for this is very simple. Every trader knows that the US economy is now recovering faster than anyone else in the world.
In particular, faster than the European economy. Why can't the dollar even get a little more expensive? At least as part of a correction against an upward trend? Is it supported by statistics from overseas and "cautiously hawkish" hints from some Fed members about a possible curtailment of the quantitative stimulus program by the end of this year? Recall that there are also rumors about the possible end of the PEPP program in the European Union. However, Christine Lagarde herself has repeatedly stated that before March 2022, even talking about the end of economic stimulus does not make sense. And her words are just confirmed by the macroeconomic statistics.
The European economy contracted in the fourth quarter of 2020, in the first quarter of 2021, and is just beginning to recover in the second quarter of 2021. In other words, the European economy needs incentives to reach pre-crisis levels sometime by 2023. In America, they expect to reach the pre-crisis trajectory of economic growth next year, and in the second quarter, they expect GDP growth of 9%. But, as we have already said, all this data does not provide any support for the US currency. Therefore, you can only pay attention to them if you are trading in a 5-minute timeframe. More global factors, which we have already discussed a million times, continue to work. And so far, nothing has changed in this regard. The US dollar has excellent chances to continue to devalue against the European currency since the global "dollar" trend presumably ended in 2017 and the pumping of the US economy with trillions of dollars, which banally inflates the money supply and leads to high inflation. There are no questions about inflation. Since in Europe, it barely accelerated to 2%. And in the United States, it can reach 5% by the end of May. Therefore, if there is any talk of curtailing the stimulus program, it is in the US. However, some members of the FOMC recall that the regulator's goal is to accelerate inflation and achieve the maximum level of employment, to which at least 8 million workers are still missing.
The so-called "Beige Book" (a summary of reports and economic forecasts from 12 US Federal Reserve banks) was published late on Wednesday. We have already said that the reaction to the "Beige Book" rarely happens. However, the information in this report provides an even better understanding of what is happening to the US economy right now. And the American economy, thanks to trillions of dollars of fiscal and monetary stimulus, is doing well. The key points of the review were as follows. The economy is growing at a moderate pace but faster than at the beginning of the year (confirmed by GDP data). The employment rate is also growing at a moderate pace in all areas.
The coronavirus epidemic continues to recede and poses fewer risks to the economy. Employment growth is noted in the service sector, which was most affected by the "lockdowns." Some districts reported a positive effect from the lifting of quarantine restrictions and high vaccination rates of the population. Retail prices and purchase prices are rising, and consumer spending is rising. All districts expect further price increases (inflation). It is noted that the demand for labor will remain high. However, the supply at this time is limited. Wage growth is moderate; more and more firms are offering a higher rate when hiring employees. Industrial production will continue to grow. Economic growth will remain stable. Thus, almost all these speak in favor of the fact that the American economy will continue to recover. Particular concerns are related only to the labor market since "the demand for labor is high, but the supply is limited." Thus, it is the labor market that can recover the longest. The question is, how will the Fed behave if the labor market recovers for another year? After all, inflation may continue to accelerate, and sooner or later, it will have to be contained. In general, the Fed will be torn between two fires in the next six months or a year.
On the one hand, the under-recovered labor market, which will require additional incentives and unemployment benefits. And on the other hand, rising inflation will continue to frighten investors and force them to leave the lowest-yielding assets in search of a solution to the depreciation of the US dollar. But all this information, as we have already said, does not have much impact on the current movement of the euro/dollar pair. Thus, although the price has been "marking time" in one place for more than two weeks, we expect the upward trend to resume and the 3-year highs to be updated.
The volatility of the euro/dollar currency pair as of June 4 is 66 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2049 and 1.2181. A reversal of the Heiken Ashi indicator back to the top will signal a possible round of upward movement.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading recommendations:
The EUR/USD pair has started a new downward movement. Thus, today it is recommended to stay in short positions with targets of 1.2085, 1.2049, and 1.2024 until the Heiken Ashi indicator turns up. It is recommended to consider buy orders not earlier than fixing the price above the moving average line with a target of 1.2268.
