4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - upward.
CCI: 160.1727
The EUR/USD currency pair continued its upward movement during the second trading day of the week, which began last Friday. If this movement looked like a correction, now every day it looks more like the beginning of a new upward trend. We wrote about this development in our fundamental articles over the weekend. On the 24-hour timeframe, the euro/dollar pair corrected to the lower border of the Ichimoku cloud of the Senkou Span B line, as well as to the Fibonacci level of 50.0% of the growth between November 4 and January 7. Thus, traders received two powerful signals about the upcoming strong growth of the European currency. Thus, now everything looks as if the price will update its 2.5-year highs in the near future. Adding fuel to the fire is the British pound, which just updated its 2.5-year highs yesterday and will continue to grow although it has much less reason to grow than the European currency. Thus, we expect the upward movement to continue in the near future.
As for the fundamental background, almost no important events occurred at the beginning of the new trading week. No important macroeconomic report was published, and the speech of the head of the ECB, Christine Lagarde, did not give the markets any new information. This means information that would be able to influence the movement of the pair right now or at least in the future. In the European Union, all the attention is now on Italy and its political crisis. Mario Draghi is now trying to assemble a new cabinet. However, everything will depend on the parliament, which will then have to approve this cabinet. If approved, it will be possible to speak of a gradual recovery from the crisis. Also of great importance (in the future) is the EU economic recovery fund, which was barely approved last summer. Thus, the countries have not yet received monetary assistance from the European treasury, which means that the recovery from the crisis is delayed. This was stated directly by Christine Lagarde at one of her last speeches. She said that it is unlikely that the EU economy will begin to recover before mid-2021 and it is unlikely that it will recover to pre-crisis levels before mid-2022. Thus, the head of the ECB is not very optimistic, however, the European currency does not pay attention to this skepticism.
Thus, our hypothesis about two "global fundamental factors", which now have an impact on the movement of the euro/dollar pair, is indirectly confirmed. We have repeatedly said that the most important factor for the US currency right now is the allocation of a new $ 2 trillion aid package, called the "Joe Biden economic rescue plan". Also, just a few days ago, it turned out that of the $ 4 trillion that was spent on stimulating the economy last year, another one remains unspent. Thus, in 2021, another three trillion dollars can flood into the markets, that is, the same as last year when the US currency has fallen by 15 cents since the beginning of the pandemic. It turns out that this year we can count on a new round of a strong fall in the US dollar by at least 10 cents, and maybe more. After all, all other macroeconomic and fundamental factors are ignored. The political crisis in Italy is not as bad for the eurozone economy as it may seem. The weak pace of economic recovery in the European Union is also not too worried about currency traders. Still, neither the US nor the European economies have yet reached pre-crisis levels. Still, the coronavirus pandemic is not over yet. It is unclear what surprises 2021 will bring. Already at the beginning of this year, it became known about new strains of "coronavirus", which are more contagious, more deadly, and simply more dangerous. The process of vaccination of the population has begun, but where did it begin? In the most developed countries. Thus, it is still very early to talk about the recovery of the whole world. In such extreme conditions, traders continue to pay attention only to global factors. And three trillion dollars taken out of nowhere is a very global factor. Also, we should not forget about the second global factor – "the fall of the US economy in the second quarter of last year". Despite the weak pace of recovery in the European economy, the US is still lower in terms of interest losses. Therefore, the euro has the advantage.
Separately, it is worth noting that both central banks, the ECB and the Fed, are currently inactive. In principle, changes in the parameters of monetary policy could affect the exchange rate of the euro/dollar currency pair. However, the ECB has long since lowered its key rate below zero, and the Fed is not a fan of negative rates. Thus, even in the coming months, no changes are expected. At the beginning of the year, there were rumors that the Fed could begin to wind down its quantitative stimulus program, which involves a monthly purchase of securities worth $ 120 billion. However, this idea sounds absurd amid an epidemiological and economic crisis. Naturally, the Fed and Jerome Powell did not announce anything of the kind. Christine Lagarde and the ECB also recently said that they are not going to increase the stimulation of the EU economy by writing off debts. To mitigate the economic impact of the pandemic and the crisis caused by it, the ECB has allocated 1.85 trillion euros under the PEPP program. Lagarde said that the cancellation of monetary debts is a direct violation of EU law, which does not allow monetary financing of states. A little earlier, the economists of the 19 countries of the Eurozone wrote an open letter to the ECB with a request to write off the debts belonging to the central bank. According to economists, a quarter of all the debt that was accumulated during the pandemic is now owned by the ECB. The letter says that countries will have to borrow money elsewhere to pay off their debts to the ECB, which will reduce the amount of investment in the economy, due to which the regulator believes that it should get out of the crisis. It is assumed that the saved funds of the state will be spent on the "green economy" and various social programs. However, the ECB's response is still unequivocal - negative.
The volatility of the euro/dollar currency pair as of February 10 is 69 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2035 and 1.2173. A reversal of the Heiken Ashi indicator downwards may signal a round of downward correction.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading Recommendations:
The EUR/USD pair continues to be in an upward movement. Thus, today it is recommended to keep long positions open with targets of 1.2146 and 1.2173 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders if the pair is fixed below the moving average, with targets of 1.2024 and 1.1963.
