Throughout last week, the EUR/USD currency pair traded incomprehensibly. The pair managed to get a foothold three times above and two times below the moving average. However, we would have understood such a technical picture if a sideways movement (flat) had been noticed the entire time. On the 4-hour TF, there was no "smell" of a flat, though. The pair have consistently demonstrated a desire to change during the week and have, in theory, been successful. Yet it came off poorly, weakly, and ineffectively. Honestly, an upward correction was coming after the euro had been falling for several weeks. But, it is already evident that investors are not eager to purchase the euro. The fundamental background that puts pressure on the euro did not exist last week. Events and reports were distinct. We look at the important news on EU inflation, which slowed down but not enough, and should have logically led to the growth of the euro. But the euro showed a decline rather than an increase, which was already highly unusual.
The fact is that the slower inflation declines, the more likely it is that eventually, it will either stop altogether or, worse still, begin to rise again. This implies that the ECB will exert more financial pressure with each report of this kind. This was a bullish factor for the euro currency at the time it was applied, and it was successful. However, not this time. We feel that this moment illustrates the reluctance of traders to accept the concept of "a minor decline in inflation—we buy euros." The ECB's ability to increase the rate as much as necessary is not thought to be strong by market participants. This indicates that they are setting a specific peak value that is lower than what is necessary to reduce high inflation. Hence, traders have already determined the rate increases that were announced. They simply do not anticipate finding new ones. Thus, we think that the value of the euro should keep declining. This option is also supported by the technical picture. After a prolonged growth, the pair has not yet adjusted sufficiently, and on the 24-hour TF, it is below the crucial Kijun-sen line.
ECB members' speeches were disappointing in several ways.
Last week, multiple ECB monetary committee members spoke simultaneously. We will not analyze each in detail and only focus on Christine Lagarde and Luis de Guindos. Everyone agreed in some way that a 0.5% rate increase in March will essentially fix the problem (particularly in light of the most recent inflation report), but that further tightening may be necessary for the future. If one of the ECB members had not stated that "it may even be necessary to raise the rate to 4%," the market might have seen these statements as a signal to buy the euro. We consider it a failure. If the market anticipated the rate could grow to 5% or higher, you won't have to hope anymore after reading these lines. They imply that 4% can be thought of as the current ECB rate's highest value. Everyone can see that such a value is insufficient to predict a significant decrease in the consumer price index.
The market immediately associated two probable maximum rates, the Fed and the ECB, and the conclusion is obvious: the Fed rate will not only stay higher for a long time but also be significantly higher. And this is a very unique factor that works to the dollar's advantage. Although we haven't yet discussed falling below price parity, the pair may move dangerously close to it. That will happen within the next few months. The ECB remains hawkish for the time being, but in May, the rate increase could slow to 0.25%. In the meantime, core inflation in the European Union has not even slightly decreased.
The collapse of the euro, in our opinion, continues to be the most likely outcome based on all the information we have received. Even without taking into account the fact that it increased abnormally for many months after the previous year. This will be a second sell signal if the pair is fixed below the Senkou Span B line on the 24-hour TF. With a strong signal. The 4-hour TF's moving average line has become extremely formal, but it still just signals the possibility of a trend change. And the ECB meeting will happen in ten days. And the Fed meeting was a week later. The market's sentiment can also be significantly impacted by Powell and Lagarde's statements because only "hawkish" remarks from both will be anticipated in the future.
As of March 6, the euro/dollar currency pair's average volatility over the previous five trading days was 87 points, which is considered to be "normal". Thus, on Monday, we anticipate the pair to move between 1.0548 and 1.0722 levels. A new round of downward movement will be signaled by the Heiken Ashi indicator turning back downward.
Nearest levels of support
S1 – 1.0620
S2 – 1.0498
S3 – 1.0376
Nearest levels of resistance
R1 – 1.0742
R2 – 1.0864
R3 – 1.0986
Trade Suggestions:
The EUR/USD pair has resumed consolidation above the moving average line. As long as you hold long positions now with a target price of 1.0722, you can do so until the Heiken Ashi signal turns bearish. If the price is fixed below the moving average line, short positions can be initiated with targets of 1.0548 and 1.0498.
Explanations for the illustrations:
Channels for linear regression - allow us to identify the present trend. The trend is now strong if they are both moving in the same direction.
Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction.
Murray levels serve as the starting point for adjustments and movements.
Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.
A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.
