The currency pair EUR/USD on Tuesday slightly corrected upwards after a two-day decline. It may seem like there is nothing surprising or bad about this. However, even a small rebound upward can ruin everything. Let's take a look at the illustration above. The upward trend has been maintained for a month now. During this time, the price has not been able to settle below the moving average line even once. To be more precise, there have been several consolidations, but each time the pair quickly recovered its northward movement, and there was no sign of a decline. Thus, the next consolidation, already the fourth below the moving average line, gave hope that this time the pair would show a strong downward correction or start forming a downward trend.
Recall that from a fundamental and macroeconomic point of view, there are no prospects for the euro to continue growing after it has already shown a growth of 550 and 1,500 points, respectively. The dollar does not look like a weak currency; the US economy is objectively stronger than the European one, and the Fed rate is higher than the ECB rate. Moreover, for some time, the euro currency could indeed grow based on the fact that the ECB was expected to raise its rate more significantly. However, recent speeches by ECB representatives show that in May, the pace of monetary policy tightening may slow down to a minimum, and the majority of Bloomberg experts surveyed believe that there will be only three more increases of 0.25% in 2023. This is only 0.5% more than the Fed might raise its rate. Considering that the euro has been actively growing over the past month, this divergence could have been worked out five times already. Therefore, we still do not see any reason for the growth of the euro currency, but the small upward correction on Tuesday could become the beginning of a new upward movement, which would be illogical and unjustified.
The market is waiting for hints from Philip Lane.
There is absolutely nothing to note about the fundamental events of Tuesday. On Monday, there was a speech by Christine Lagarde, but in the previous article, we did not even mention it because the head of the ECB did not say a word about monetary policy or inflation. We do not consider speeches that do not concern the economy and have the nature of a "coffee break chat." On Tuesday, there was not even such an event. Therefore, the upward correction of the pair is quite logical in the short term, but the decline of the European currency should urgently recover now. Otherwise, all this may end up with a new round of growth without correction.
On the 24-hour timeframe, it is visible that at the moment, the pair has only managed to exceed its last local maximum by a few dozen points. The latest wave of growth turned out to be quite convincing in terms of being the last in the entire upward trend. Now, in essence, it is being decided whether the upward trend will be much stronger than it is now. If so, then the euro's growth should recover in the coming days. If not, then the decline should continue in the coming days. Naturally, we support the second option and are waiting for the pair to reach at least the 1.0550 level.
Today, the final inflation figure for March will be published in the European Union, which is unlikely to affect market participants' sentiment. The market is already prepared for a value of 6.9% y/y, and even a minimal deviation from the forecast (which is the first estimate) is unlikely to shock it enough to cause a rush to sell or buy. Also today in the European Union, the ECB's chief economist, Philip Lane, will speak; he may be at least slightly more eloquent than Christine Lagarde. The market needs hints on the size of the rate increase in May. If the increase is 0.5%, the euro currency may surge again; otherwise, almost all factors will speak in favor of its decline. Also, remember that the CCI indicator on the 4-hour timeframe entered the overbought area, which happens quite rarely and is a strong sell signal.
The average volatility of the euro/dollar currency pair for the last 5 trading days as of April 19 is 87 points and is characterized as "average." Thus, we expect the pair to move between levels 1.0872 and 1.1046 on Wednesday. A reversal of the Heiken Ashi indicator back down will indicate a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.0864
S2 – 1.0742
S3 – 1.0620
Nearest resistance levels:
R1 – 1.0986
R2 – 1.1108
R3 – 1.1230
Trading recommendations:
The EUR/USD pair has started the long-awaited correction. At this time, new short positions can be considered with targets at 1.0872 and 1.0864 in case the price bounces off the moving average. Long positions can be opened after the price consolidates above the moving average line, with targets at 1.1046 and 1.1108.
Explanations for illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, it means the trend is currently strong.
The moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murrey levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal is approaching in the opposite direction.
