4-hour timeframe
Amplitude of the last 5 days (high-low): 29p - 70p - 160p - 54p - 94p.
Average volatility over the past 5 days: 81p (high).
The only more or less significant macroeconomic report of the day was ignored by participants in the foreign exchange market. At least at the moment it is possible to draw such a conclusion. There were no changes in the EUR/USD exchange rate after the release of the report on industrial production in the United States for August. In monthly terms, the indicator immediately added 0.6%, which is much higher than the forecast of +0.2% and the previous value of -0.2%, which was later revised upwards, to -0.1% m/m. However, in annual terms, the increase in industrial production amounted to only 0.4%. For comparison, a month earlier the increase was 0.5%, another month earlier 1.1%, even earlier - +1.8%. A year ago, industrial production growth was +5.4% y/y. Thus, we believe that this report could hardly support the US currency in any case. No further news from America or the European Union has been received today.
Yesterday we noted the importance of the 61.8% Fibonacci level, talking about the size of the correction against the pair's growth last Friday. Today we plotted a Fibonacci grid on the chart for a clearer perception of this level. From a technical point of view, it turns out that we have at our disposal a "double bottom" pattern, which is a strong pattern, as well as a correction to the 61.8% Fibonacci level, followed by a rebound from it. Thus, even though the pair left the area below the Ichimoku cloud, we believe that the probability of a turn up and further upward movement of the euro/dollar pair is currently very high. If the Federal Reserve does not bring any surprises to traders tomorrow, then the probability of the euro strengthening is at 90%. However, no one can predict with 100% probability the behavior of traders tomorrow, no one knows what Jerome Powell will say at the press conference. It is possible that the head of the Fed might say that there will be no more rate cuts in the near future, then the market will perceive this news as positive for the US currency and could rush to buy the dollar. However, if all assumptions are discarded, then the current picture speaks in favor of strengthening the euro currency in particular.
Meanwhile, a day before the announcement of the results of the Fed meeting, it would be nice to figure out what are the chances of a rate cut in general? At the July meeting, the victory of the "doves" was unambiguous, 8–2. Now, the presidents of the Fed of St. Louis and Minneapolis James Bullard and Neil Kashkari are in favor of a new rate cut. The president of the Chicago Fed, Charles Evans, recently joined them. Opponents of the rate cut are the presidents of the Cleveland and Philadelphia Fed Loretta Mester and Patrick Harker. Most likely, they are joined by the president of the Boston Fed Eric Rosengren and the president of the Fed of Kansas City Esther George. Thus, according to preliminary estimates of both supporters and opponents of the new easing of monetary policy, it can be approximately equally divided. It seems that rating and statistical agencies also pay attention to the mood of the members of the monetary committee of the Fed and reduce the likelihood of lowering the rate a day before the announcement of the results of the meeting. At the moment, it is 60-70% according to various sources. But it may happen that the last and decisive word rests precisely with Jerome Powell, who will remain at a crossroads, but can show once again that the Fed does not pay attention to Donald Trump's insinuations and does not depend on his opinion. In the current situation, we still expect a decrease in the rate and growth of the EUR/USD currency pair.
Trading recommendations:
The EUR/USD pair corrected to the level of 1.0997 and rebounded from it. Thus, it is now recommended to reconsider purchases while aiming for 1.1103 and 1.1146. Tomorrow, a few hours before the start of the results of the Fed meeting, we recommend either to exit the market or move defensive orders closer to the price. A strong surge in volatility is possible.
In addition to the technical picture, fundamental data and the time of their release should also be taken into account.
Explanation of the illustration:
Ichimoku indicator:
Tenkan-sen is the red line.
Kijun-sen is the blue line.
Senkou Span A - light brown dotted line.
Senkou Span B - light purple dashed line.
Chikou Span - green line.
Bollinger Bands Indicator:
3 yellow lines.
MACD indicator:
Red line and bar graph with white bars in the indicator window.
