4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 42.4710
The EUR/USD currency pair on Tuesday, January 26, began a new round of downward movement and again consolidated below the moving average line. But not for long. Already in the US trading session, the quotes returned to the area above the moving average. Recently, trading on the pair is not too volatile, however, the price does not standstill. At the same time, the fundamental background continues to leave too many unanswered questions. So far, the technical picture is more or less accurate and allows you to trade without paying any attention to the fundamental background. But if the euro/dollar pair starts flat or "swing", then you will not be able to trade more or less consciously at all. And the pair is already walking on this edge. As for the fundamental background, it is becoming more and more alarming. There are too many factors that can influence the euro or the dollar. They can do it now, and they can start doing it soon. Let's try to focus on the most important factors and predict the movement of the currency pair in the coming weeks.
Factor number 1 - the most important. This is a package of stimulus measures for the American economy. For most of 2020, we have repeatedly asked the question, on what grounds is the euro currency rising and the dollar falling? At first, everything was logical. After the whole world was in a panic for about a month and massively bought up the dollar (in the spring of 2020), a period of calm came and the dollar began to fall in price at a lower rate. However, after about 6 months, it became clear that the panic has long passed, the world has more or less moved away from the "lockdown", and the US currency is still falling. Now the most likely factor in this decline is seen as a package of stimulus measures, which was approved by Congress and amounted to a total of almost $ 4 trillion. This money was taken out of nowhere, that is, simply printed, and poured into the economy. From the very initial course of macroeconomics, it is known that if the money supply becomes larger, but there are no goods and services, this spurs inflation, and also devalues the exchange rate of the currency, which becomes more in circulation, while the demand for it does not become higher. Thus, it seems that throughout 2020, this factor was putting pressure on the dollar, although this was not initially obvious. Thus, if the US Congress, led by Joe Biden, now approves a new package of stimulus measures (expected to be $ 1.9 trillion), then logically, this money will again simply be printed and distributed to businesses and Americans. That is, it is not credit money, not the purchase of assets and securities from the open market to fill it with liquidity. This is "helicopter money". If these 2 trillion will be poured into the economy, it is quite possible to expect a fall in the US currency in the future by another 5-6 cents or 500-600 points.
Factor number 2. The decline of the EU and US economies in the second quarter of 2020. The pandemic began in March 2020. This means a large-scale spread of the virus and the first "lockdown". It was then that it became clear that any economy that underwent a "hard" quarantine would inevitably shrink. And the longer the quarantine, the greater the drop in GDP. In the States, this drop was a record - at 31.4%. In the European Union - only 11.7%. Thus, the US economy lost almost three times as much in the second quarter as the European one. However, it recovered in the third quarter more strongly - by 33.4%, while the European one - by 12.5%. However, it is only at first glance that the US has recovered more strongly. That is, simply put, the EU economy is now in a minimal minus, and the US economy is still in a tangible minus. Let's add here the data for the fourth quarter of 2020. The US economy is projected to grow by 4%, while the EU economy will lose 2%. That is, even taking into account the losses of the fourth quarter, when the second "lockdown" was introduced in the European Union, the European economy has lost less since the spring of 2020 than the American one. And it has poured much less "helicopter money" into its economy than the American one. Thus, it turns out that the two most important factors that do not lie on the surface indicate in favor of the euro currency.
Other factors, from our point of view, now play almost no role. A very interesting observation: the latest round of weakening of the US currency began the day after the US presidential election. We can even assume that the fall of the US dollar by another 500-600 points over the past 2.5 months is somehow connected with the loss of Donald Trump in the election. However, we believe that the factors described above played a role, not the political one. Although in general, during 2020, the US currency could partly be under pressure due to the "four types of crisis", which we have repeatedly written about.
What does the future hold for the US dollar? If the US Congress approves the $ 2 trillion package, the US currency is likely to continue falling. The question is not whether to respond to the European Union? After all, nothing prevents it from also applying the "helicopter money" strategy. In general, this is already called currency manipulation, disguised as a good intention to save the economy. If the European Union does not respond, the US dollar will continue to fall in price. Most likely, after the correction, which began just at the beginning of 2021. Therefore, we can expect the resumption of the upward trend in the next week or two. And do not forget that any theory or hypothesis must be supported by technical factors. Do not forget that macroeconomic statistics continue to be ignored by the markets. Do not forget that there is still a coronavirus pandemic in the world.
The volatility of the euro/dollar currency pair as of January 27 is 65 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2091 and 1.2221. A reversal of the Heiken Ashi indicator downwards may signal a new round of downward movement.
Nearest support levels:
S1 – 1.2146
S2 – 1.2085
S3 – 1.2024
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading recommendations:
The EUR/USD pair has consolidated back above the moving average. Thus, today it is recommended to stay in long positions with targets of 1.2207 and 1.2221 until the Heiken Ashi indicator turns down. It is recommended to consider buy orders if the pair is fixed back below the moving average with a target of 1.2085.
