4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -154.4133
The EUR/USD currency pair continued its slow downward movement on Thursday, February 4. The volatility on this day was again not too high, however, it is still higher than a day earlier. The nature of the movement has not changed at all. All the same forward movement down with minimal pullbacks up. We continue to argue that the nature of the current movement is purely technical. However, the fact that the markets now ignore almost all macroeconomic statistics is clear to all traders. A vivid example of this is Wednesday, February 3, when both the United States and the European Union published important reports that had quite unexpected values. However, on this day, the pair did not work out this data and it also gave out almost the minimum volatility for the last 30 working days. Thus, the conclusion, from our point of view, suggests itself. Unfortunately, this does not mean that now the calendar of macroeconomic events can not even be opened. First, no one knows when the statistics will again be taken seriously by the market. Secondly, this does not mean that you do not need to be aware of the state of the key indices and indicators of any economy. The question is, when will this roulette game end and everything will return to normal? Recall that before the pandemic, which began in March last year (acquired the status of a pandemic), the markets very rarely ignored the statistics. This, of course, happened, but not so often. Today we will understand why the markets abruptly began to ignore the reports and when it will end.
We have concluded that there can only be one reason why the market ignores statistical information – more important, deeper, and long-lasting fundamental factors. In previous articles, we have already assumed that, probably, in the last 10 months, market participants trade based on two main factors: "the balance of power of the US and EU economies" and "the stimulus programs of both economies". Thus, it turns out that these two global topics simply overlap all the macroeconomic statistics. Of course, this does not mean that each trader suddenly decided for themselves that statistics are not important now and they will not pay attention to it. Rather, we are talking about large, institutional players who operate with billions of dollars and euros and do not always pursue the goal of "making a profit" by making transactions on the international forex market. But it is such large traders who drive the market. Take, for example, a large multinational company that operates with a large export turnover. After all, it does not need a currency to buy it profitably and then sell it even more profitably. Other companies pay with this currency, and then this currency is converted into the national currency to make payments in the territory of the country where the production is located. Thus, if the exchange rate of the importing country, for example, decreases, it means that our company, transferring money to the national currency, begins to lose. What if our company makes purchases abroad? Then the higher the exchange rate of a foreign currency, the more expensive it is to buy raw materials or spare parts or whatever. Thus, large companies that operate around the world can buy or sell a particular currency in advance to ensure against future exchange rate jumps, to have enough of the necessary currency for future calculations, and so on. But all these transactions also affect the overall rate.
In normal times, neither the Fed, nor the ECB, nor the US and EU governments pour trillions of dollars or euros into their economies. In normal times, the economies of these countries do not shrink by 10-30% in one quarter. They develop little by little. Little by little they grow, little by little they shrink. Therefore, changes of 1-2% are not global. In such calm conditions, the markets pay attention to macroeconomic statistics as a fairly significant factor. Because, roughly speaking, an increase or decrease in inflation by a couple of tenths of a percent can affect that one or two percent of GDP growth. Now, when the economies fall by huge values, then recover by the same huge values, when no one knows when the next "lockdown" will be, what other epidemiological surprises humanity will have to face when tons of money is poured into the economies to stimulate them, then, figuratively speaking, the index of business activity in the EU in the services sector for January does not matter. That's why the markets continue to ignore all the statistics. Right now, these statistics have an extremely small impact on global factors. Therefore, we need to wait for the economy to recover and resume normal calm development. We need to wait for governments and central banks to stop pouring trillions of money into supporting their economies. After all, any new money creates an imbalance in the supply and demand for a particular currency. Of course, if the Fed pours in $ 4 trillion over a year (for comparison, the total US national debt at the time before the outbreak of the pandemic was about 25 trillion and it accumulated for years, if not decades), then the dollar exchange rate begins to "storm". Thus, we can assume that as long as the world situation does not stabilize and the economies do not recover, the situation with the macroeconomic background will not change. In this case, you need to pay attention only to global fundamental factors (fortunately, there are not many of them) and to technical factors, which play a primary role in forecasting the intraday and the short term. Now the new stimulus package is stuck in Congress and the dollar immediately feels much better. We believe that as long as the US government does not start throwing money out of the helicopter again, the US currency can feel relatively confident. And, of course, much will depend on the size of the new stimulus package?
The volatility of the euro/dollar currency pair as of February 5 is 70 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1892 and 1.2032. A reversal of the Heiken Ashi indicator to the top can signal a round of upward correction.
Nearest support levels:
S1 – 1.1963
S2 – 1.1902
S3 – 1.1841
Nearest resistance levels:
R1 – 1.2024
R2 – 1.2085
R3 – 1.2146
Trading Recommendations:
The EUR/USD pair continues its downward movement. Thus, today it is recommended to trade downwards with the targets of the levels of 1.1902 and 1.1892 before the reversal of the Heiken Ashi indicator to the top. It is recommended to consider buy orders if the pair is fixed back above the moving average with targets of 1.2085 and 1.2146.
The material has been provided by InstaForex Company - www.instaforex.com