4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -59.7585
The EUR/USD currency pair continued to trade calmly on Thursday, July 15. We have repeatedly said that the volatility of the pair in recent weeks and even months leaves much to be desired. On the one hand, volatility is characterized as "average." On the other hand, this is still not enough to conduct active trading. We have also already drawn traders' attention to the fact that the US currency, although it has been growing in the last month and a half, is doing it very strained. In principle, it passed most of its way down a couple of days after the last Fed meeting, when hints were first voiced from Jerome Powell about a possible curtailment of the quantitative stimulus program. We will talk about this a little bit below. And now we would like to note that our forecast is being implemented accurately, according to which it will be extremely difficult for the US dollar to show growth further. According to the global technical factor, we expect the euro/dollar pair to fall to a maximum of 1.1700. So far, the quotes are located approximately 100 points from this level. On average, the dollar is getting more expensive by 20-30 points per week, which indicates the weakness of the bears and the absence of strong growth factors for the US dollar. Thus, as before, we expect that the US dollar can grow against the euro by another 100 points. However, after that, we expect a resumption of the global upward trend, which has lasted for a year and a half. According to our assumptions, we also recall that the upward trend that began last March has not yet ended. And the fact that the price could not overcome the level of 1.2260 this year and update its three-year highs may mean that traders decided to take overclocking for a confident breakdown of this level. In principle, we see a very similar picture for the British pound, which could not overcome its three-year highs for a long time and eventually moved down.
As we said above, the main fall of the pair over the past month and a half occurred immediately after the Fed meeting, at which Jerome Powell noted that discussions on curtailing the quantitative stimulus program could begin in the monetary committee in the near future. However, several of his subsequent speeches showed that the conversations might have already started. All this time, Powell and his colleagues have repeatedly made it clear that the increase in inflation is considered temporary. The main thing is the recovery of the labor market. There have been repeated phrases that the Fed will not be guided by the inflation indicator alone when curtailing QE. Jerome Powell repeated all these theses yesterday before the US Congress as part of his two-day stay there. In principle, it does not make much sense to analyze Powell's speech since there was nothing new compared to previous speeches. During the last article, we have already said that it is unlikely that the rhetoric of the head of the Fed will change, even despite the continued growth of inflation. It was evident that inflation in the United States was supposed to grow and will continue to grow further. For the first time in 25 years, it may exceed 6% y/y. Such figures could well be expected, given how many trillions of dollars were poured into the American economy. Recall that inflation is a process of depreciation of money, and it is observed when the volume of the money supply grows faster than the number of goods and services produced in the country. Thus, you don't even need to be an economist to understand that the number of goods and services in almost any country in the world decreased during the pandemic. And there is much more money, especially in the United States. Therefore, inflation of 5% is not the worst-case scenario. The Fed also understands this (does anyone think that the figure of 5% is a surprise for the central bank?). The Fed understands that the consumer price index is likely to continue to grow. Powell said this in a plain text yesterday before congressmen: "Inflation is likely to grow for several more months before it starts to decline." However, since inflation is an inevitable result when you print money by the ton, it hardly surprised the congressmen. The fundamental goal for the Federal Reserve now is the complete recovery of the labor market, which, again, Powell personally has stated repeatedly. Accordingly, it can be assumed that the Fed will not curtail the QE program and raise rates until the labor market fully recovers. And according to the assurances of the same head of the Fed, the labor market does not count at least another 7.5 million workers compared to the figures before the pandemic. We look at the Nonfarm Payrolls indicator and understand that, on average, you can count on an increase in jobs in the amount of 500K every month. Simple math shows that it can take 14-15 months to achieve the goal. Even if the Fed starts to reduce the QE program in advance, it is still unlikely earlier than in 7-8 months. Accordingly, it makes no sense to expect any tightening of monetary policy before 2022. All this time, the Fed will continue to print money in arbitrary amounts, provoking inflation to even more significant growth and continuing to inflate the money supply in the United States. From our point of view, this is an excellent factor to expect a new powerful fall in the US currency. At this time, the US dollar continues to be near the 18th level and is struggling to grow further. But these attempts are highly strained and can break off at any moment.
The volatility of the euro/dollar currency pair as of July 16 is 65 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1746 and 1.1876. A reversal of the Heiken Ashi indicator back upwards will signal a new round of upward movement.
Nearest support levels:
S1 – 1.1780
S2 – 1.1719
S3 – 1.1658
Nearest resistance levels:
R1 – 1.1841
R2 – 1.1902
R3 – 1.1963
Trading recommendations:
The EUR/USD pair has adjusted to the moving average and may bounce off it. Thus, today it is recommended to open new short positions with targets of 1.1780 and 1.1762 in the event of a price rebound from the moving average. It is recommended to open buy orders now no earlier than the price is fixed above the moving average line with a target of 1.1902.
The material has been provided by InstaForex Company - www.instaforex.com