4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -197.3034
On Wednesday, June 16, the EUR/USD currency pair was trading very calmly again for most of the day. We will deliberately not consider the results of the Fed meeting in this review, as more than a dozen articles will be devoted to this today. We want to focus your attention today on the technical factors and fundamental global factors that are key for the euro/dollar pair. It is only necessary to recall a few key points, as it immediately becomes clear that the pair is now moving along a specific strategy. And now we will try to understand these points. First, if you look at the higher timeframe, it becomes clear that the pair moves very systematically and without frequent reversals. For example, from November 3 to January 6, there was a precise upward movement with almost no pullbacks and corrections. From January 6 to April 1 – a downward movement, and from April 1 to this day – an upward movement. Each piece of the trend took 2-3 months, and during this time, there were very few corrections against the main movement. Thus, at this time, we can assume that a very weak correction is taking place, which will end in the near future, or a new medium-term segment of the downward trend begins. We are more inclined to the first option, as we have repeatedly noted the high degree of influence on the movement of the pair of fundamental global factors. Secondly, intraday movements are now very weak. Over the last 30 business days, the average volatility is only 57 points (as of yesterday), which is not very much even for the traditionally low-volatility euro/dollar pair. Thus, the markets trade very slowly and steadily. What does all this mean? The fact that fundamental global factors and their confrontation with major players are reflected in the currency pair chart alternately. For example, the Fed begins to pour another hundred billion dollars into its economy, and the dollar starts to become cheaper. Then the markets begin to pay more attention to the US dollar and buy it. Thus, for a couple of months, the movement changes to a downward one, and so on. However, in general, the US dollar remains in a highly unfavorable position, as the Fed will not reduce or curtail the quantitative stimulus program and raise the rate in the near future.
Consequently, the money supply in the US continues to inflate, and the hopes of the US currency for strong growth in the near future continue to evaporate. In addition, we have already said that in 2017, the global downward trend presumably ended. Thus, in the next few years, the European currency may continue to gravitate towards growth.
I would also like to talk separately about the EU's 750 billion euro economic recovery fund. These 750 billion euros, unlike the stimulus programs of the Federal Reserve and the US Congress, will not be printed but will be raised from the member countries of the European Union themselves. This money will not be taken out of thin air, and the amount itself is not as huge as the stimulus packages in the United States. Recall that the 2022 fiscal year budget in the United States is planned at $ 6 trillion. Thus, we believe that these 750 billion euros will do no good for the US dollar. Separately, I would like to note that the macroeconomic statistics from the United States, which the markets as a whole cheerfully ignore, have recently been very contradictory. The labor market in the United States is recovering. However, it is still very far from fully recovering. Nonfarm Payroll indicators and ADP reports do not always meet the forecasts and expectations of traders. Business activity in the service and manufacturing sectors has grown strongly and continues to grow, but inflation is also increasing, making American investors nervous and worried. In addition, the US dollar itself, according to many experts, is beginning to lose its status as a "world currency." It is evidenced by the fact that over the past 20 years, the share of the US dollar in the gold and foreign exchange reserves of central banks has significantly decreased and continues to decline. And in the coming years, this process may continue. Of course, this is not without political games. The United States has repeatedly threatened to disconnect Russia from the SWIFT international payment system, and a trade war has been waged with China for several years. Thus, it is not surprising why the main competitors of the United States on the world stage want to abandon the use of dollars as much as possible.
Another thing is that now there is nothing to replace the US currency for international payments. Of course, there is the euro or bitcoin. But the first one is still as popular as the dollar, and the second one still does not pull for such a responsible role. If we talk about global trends, the US dollar is now getting cheaper, inflation is eating up its value inside the US, and the world's largest countries are slowly getting rid of dollar dependence. All this can significantly reduce the demand for the dollar in the international currency market, which will lead to the fact that there will be many dollars, but the demand for them will be very weak. That is why we continue to believe that, in some ways, the "dollar era" has come to an end. Maybe not forever, but for the next few years for sure. So any outcome of the Fed meeting right now doesn't make much sense in the long run. Yes, the markets react to this data similarly as ordinary macroeconomic statistics and global movements do not depend on a simple "foundation" or "macroeconomics."
The volatility of the euro/dollar currency pair as of June 17 is 70 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1960 and 1.2092. The upward reversal of the Heiken Ashi indicator signals a round of upward correction.
Nearest support levels:
S1 – 1.2024
S2 – 1.1993
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2054
R2 – 1.2085
R3 – 1.2115
Trading recommendations:
The EUR/USD pair has started a new round of downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1993 and 1.1963 until the Heiken Ashi indicator turns up. It is now recommended to open buy orders no earlier than fixed above the moving average line. In any case, the markets should be given time to calm down after the publication of the results of the Fed meeting.
