4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -98.7810
The EUR/USD currency pair unexpectedly collapsed on Tuesday, August 17, updating its previous local minimum. Thus, although a couple of days ago the pair's quotes were fixed above the moving average line, which gave grounds to assume the beginning of the formation of a new upward trend, the bulls failed to keep the initiative in their hands, and the bears took over the market again. However, now it is very important to understand why yesterday's fall in the quotes of the European currency occurred at all. Tuesday's macroeconomic statistics did not look like the one capable of provoking a 65-point drop in the pair, although the volatility indicator was recently 40-50 points. On the one hand, the downward movement cannot even be called too strong.
On the other hand, it happened in a few hours, and, for example, the pound/dollar pair fell much longer and stronger. That is, it turns out that there is again an uncorrelation between the two main pairs. Moreover, in both cases, macroeconomic statistics did not have a strong impact on the movement. In the UK, it turned out to be quite strong and should have provoked the growth of the pound, not its fall. In general, Tuesday's trading turned out to be as strange as possible, as illogical as possible. Despite the new strengthening of the US currency, we still do not believe in the dollar's long-term prospects. From our point of view, the fundamental background and the technical picture do not change at all for the euro/dollar pair and, in particular, for the US currency. Therefore, we continue to expect growth. But we also remind you that whatever the fundamental hypothesis is, it must be confirmed by technical signals: as long as the price is below the moving average line, you should trade down.
Meanwhile, the whole world is watching the events in Afghanistan. It is difficult to say whether these events can provoke the strengthening of the US currency? Theoretically, everything is possible. Recall that the United States withdrew its troops from Afghanistan, where they had been for 20 years. US President Joe Biden said that he does not regret the decision and believes that American soldiers should not die in a war where local forces are not ready to fight for their homeland and future. The US President noted that America made many mistakes in Afghanistan. However, the continued presence of American troops in the country would not have changed anything. Biden also noted that America had a choice: either withdraw troops from the territory of Afghanistan or start a new war with the Taliban. "Many Afghan politicians did not even try to fight for their country," the US president stressed.
However, politics and the next geopolitical problems are one thing. We are still more interested in the economy. Next week, an economic symposium will be held in Jackson Hole, within the framework of which Jerome Powell will speak. The head of the Federal Reserve regularly makes speeches. However, recently, he rarely touches on the topics of monetary stimulus and its completion. Although a few months ago, after the next meeting of the Fed, it was Jerome Powell who was the first to say that "the Fed may start discussing the curtailment of the QE program in the near future." Since then, the US currency has been growing in price, and the markets have been waiting all this time for the Fed and its head to start talking about the end of QE more specifically. Last week, several Federal Reserve's monetary committee members spoke out in favor of ending the quantitative stimulus program. In their opinion, inflation has already accelerated to quite impressive figures, and the labor market is recovering at a good pace. Thus, already at the September meeting of the regulator, it makes sense to discuss the issue of curtailing the asset purchase program. In principle, this is true, and if a new "wave" of the pandemic does not slow down the recovery of the American economy, then in September, the Fed may indeed announce the curtailment of QE. However, it should be understood that such a statement will not mean completing this program at once. Most likely, its volumes will decrease gradually over a very long period of time. The labor market has not fully recovered yet, and the unemployment rate remains much higher than pre-crisis levels. Nevertheless, the markets may rush to buy the US currency with enthusiasm if such rhetoric is voiced.
The volatility of the euro/dollar currency pair as of August 18 is 52 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1666 and 1.1770. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward correction.
Nearest support levels:
S1 – 1.1719
S2 – 1.1658
S3 – 1.1597
Nearest resistance levels:
R1 – 1.1780
R2 – 1.1841
R3 – 1.1902
Trading recommendations:
The EUR/USD pair has started a new round of downward movement. Thus, today, you should stay in short positions with targets of 1.1688 and 1.1666 until the Heiken Ashi indicator turns up. Purchases of the pair will be possible if the pair is fixed above the moving average line with targets of 1.1810 and 1.1841 before the Heiken Ashi indicator turns down.
