4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -5.9182
On Wednesday, July 14, the EUR/USD currency pair continued to be inside the downward trend that began on May 25. However, the pair's downward movement remains extremely progressive and unhurried. On the one hand, this is logical, since the euro/dollar pair is the main currency pair in the foreign exchange market and is traditionally not too volatile. And the euro and the dollar are considered one of the most stable and popular currencies in the world. On the other hand, we are interested in the prospects of this pair in the near future. And the technical picture is now such that it is still very difficult to count on further strengthening of the US currency. We have already said that we fully expect a new round of downward movement around the level of
1.1700. This forecast is because, on the 24-hour timeframe, the pair is frankly inside a new round of corrective movement against the global upward trend, which can last for several more years quite calmly. Often corrections take the form of three waves, so now we expect exactly this scenario. But already around the level of 1.1700, this correction can be considered complete. At the same time, global fundamental factors continue to remain on the side of the euro. At the same time, it is due to the negative from the United States, and not due to the positive from the European Union. Recall that the Fed continues to pour trillions of dollars directly into the economy and through the US government, buying back its debts. It is this factor that continues to inflate the US money supply, which leads to crazy inflation and an increase in the supply of the dollar in the foreign exchange market. Perhaps, if Jerome Powell and the Fed announced that the quantitative stimulus program will be curtailed in the near future, then the US currency will receive additional market support. However, a lot will play here when exactly the QE program will cease to operate. From a technical point of view, on the 4-hour timeframe, quotes fell by 490 points in a month and a half, and 270 points of them went down two days after the Fed meeting when Jerome Powell hinted at a possible start of a discussion on the curtailment of the stimulus program among the members of the monetary committee. The most interesting thing is that in his later statements, he repeatedly emphasized that the Fed is not going to tighten monetary policy just because inflation is rising. The head of the Fed made it clear that the labor market, which is still far from its full recovery, has a higher priority. Thus, the US currency seems to have additional market support, since the chances that the Fed will still announce the curtailment of the QE program are growing at the same pace as inflation in the US. But at the same time, Powell himself has regularly stated over the past year that inflation is an important indicator, but not a key one. Thus, we believe that in the coming months, the Fed will not go to the end of the QE program, which means that the US dollar remains under market pressure in global terms, although it may continue to grow moderately in the medium term.
By the way, Jerome Powell's speech in the US Congress will take place today. The Fed Chairman has been speaking to Congress for two days and his first speech took place late last night. Thus, this morning, it will be possible to find out what Powell said and whether he touched on the topic of inflation and the curtailment of QE. The reaction to Powell's speech is also likely to be stretched for two days in the time since American markets and stock exchanges will also be closed at night, as well as European ones. Thus, the processing of Powell's statements is likely to begin this morning. On the other hand, no one knows exactly what the Fed chairman will say, so it is not recommended to guess and make trading decisions based on this. Moreover, the pair faces more important issues now. Whatever the reaction of the markets to Powell's speech in Congress, it is now important to understand whether the dollar will receive long-term support from traders or whether the fairy tale of the last month and a half will end for him in the near future. Thus, Powell's rhetoric is extremely important. However, we believe that it is better to clearly understand everything that the head of the Fed will say, and therefore already trade under these statements.
As for our opinion regarding Powell's possible statements, it does not differ from the opinion expressed earlier. We do not believe that in 2021 the Fed will go to curtail the QE program since the labor market is still very far from pre-pandemic levels. Cash injections are needed to ensure that the labor market continues to recover, and inflation can be ignored. Moreover, the head of the Fed has already made it clear that the increase in inflation is a temporary phenomenon. Therefore, if this was not just an attempt to calm the markets, the consumer price index may start to slow down in the next few months. We also do not believe that inflation will begin to slow down, but Jerome Powell knows more about this issue than we do. Thus, we do not believe that there will be any hints in Congress about the end of QE. Moreover, inflation was published the day before yesterday, and Powell's first speech took place last night. Most likely, the text of the speech was compiled long before the publication of the inflation report. Therefore, it is unlikely that it included updated data on prices in America. Of course, congressmen can ask Powell the corresponding question, but Jerome will most likely try to answer it as vaguely as possible and adhering to the previous rhetoric.
The volatility of the euro/dollar currency pair as of July 15 is 71 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1762 and 1.1904. The reversal of the Heiken Ashi indicator back down signals the resumption of the downward movement.
Nearest support levels:
S1 – 1,.780
S2 – 1.1719
S3 – 1.1658
Nearest resistance levels:
R1 – 1.1841
R2 – 1.1902
R3 – 1.1963
Trading recommendations:
The EUR/USD pair has adjusted to the moving average and may bounce off it. Thus, today, it is recommended to open new short positions with targets of 1.1780 and 1.1762 in the event of a price rebound from the moving average. It is recommended to open buy orders now no earlier than the price is fixed above the moving average line with a target of 1.1902.
