4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward
Moving average (20; smoothed) - downward.
CCI: -63.1285
The EUR/USD currency pair started a long-awaited correction during the second trading day of the new week. Or it has completed a correction within the framework of a long-term upward trend. It depends on which side you look at it. The first thing to note is that the quotes of the euro/dollar pair fell almost non-stop and recoilless for 2 weeks. At the same time, for example, the pound/dollar pair showed a much more restrained downward mood. Although, it would seem that the factors that provoked the growth of the US dollar were the same. The euro currency fell strongly, and the pound remained close to its 2.5-year highs. Further, if we take into account the entire trend that began a year ago, and within which the European currency grew by 17 cents against the dollar, now we are seeing a banal correction against this trend. And since the ascent itself took about 10 months, the downward correction may take three or four months, of which only two have passed. Thus, if we analyze the most senior timeframes, the upward trend is not canceled and can resume at any time. If we consider the global fundamental factors, then the fall in the quotes of the US currency should continue in 2021. We have repeatedly analyzed such an indicator as to the money supply in the European Union and the United States, which allows us to conclude that the scale is excessively shifting in the direction of the dollar. Simply put, the money supply in the United States has grown excessively over the past year, and the same period in the European Union – by only 10-15%. Thus, the number of dollars in the world has become banal, which has harmed the dollar exchange rate. Based on all of the above and the fact that at least another $ 2 trillion will be poured into the US economy during 2021, it turns out that the upward trend will be resumed within the next one or two months. Returning to the 4-hour timeframe, we can conclude that now the pair will begin to rise and may go up 200-300 points, after which another round of downward movement may follow. However, in global terms, the technical picture is not changing yet.
Meanwhile, US Treasury Secretary Janet Yellen is much more relaxed about everything that is happening in the US economy than investors and traders. For example, Ms. Yellen is not worried about rising government bond yields. Earlier, the head of the Federal Reserve Jerome Powell showed about the same mood. Ms. Yellen believes that the economy will not overheat, and inflation will not fly into space, despite the trillions of dollars that the American economy has been pumping for the second year. According to the Minister of Finance, the new stimulus package, which has already been approved by the Senate, will lead to a crackdown on inflation and contribute to the recovery of economic sectors. Yellen also noted that even if inflation starts to grow strongly, the government and the Fed have enough tools and levers to keep it down. Recall that the growth in the yield of American treasuries occurs just against the background of investors' fears about the growth of inflation in the future, which will "eat" all the profits on bonds. Given the same trillions of dollars that have been poured into the economy, waiting for inflation to rise is a logical decision. Powell and Yellen make no secret of the fact that everything is being done to disperse inflation, which, according to the main US financiers, will contribute to faster economic growth. Thus, the quantitative stimulus program that the Fed is currently conducting can begin to wind down only when inflation exceeds 2.0% and will remain at this level for more or less a long time. At the moment, inflation in annual terms is 1.4%. And to say that it accelerates at a high rate is not yet possible. Therefore, a reduction in the volume of the QE program is not expected in the near future. Also, do not forget that the top officials of the United States attach great importance to the state of the labor market. And monetary policy is unlikely to tighten until unemployment and employment levels reach or even approach pre-crisis levels.
Returning to US treasuries, which many analysts and traders blame for the dollar's rise in recent weeks, their yields fell slightly on Tuesday. Formally, we can even conclude that this decline led to the fall of the US currency against the euro and the dollar. However, we still believe that the yield of 10-year treasuries, if it has an impact on the market, is not the only factor that does it. And it is certainly not a long-term influence on the dollar. We have already analyzed the yield curve of US bonds more than once and concluded that in most cases, the increase in yields did not lead to the growth of the dollar. However, we still assume that this factor has a certain impact on the US currency. In the last year, the price of stocks, cryptocurrencies, and even currencies can be influenced by factors that any trader would have laughed at a couple of years ago. Posts in the Reddit community, Elon Musk's tweets, the weak influence of macroeconomic factors – this is the reality of 2020-2021. Therefore, if most traders believe that the higher the yield of the treasury, the more dollars you need to buy, then this pattern may work for a while.
In technical terms, the downward trend on the 4-hour timeframe is still maintained, and if the bears manage to keep the pair below the moving average, the downward movement may resume this week. But we are inclined to the option with a round of upward movement since we do not particularly believe in the regularity of the growth of the dollar based on the growth of the yield of treasuries.
The volatility of the euro/dollar currency pair as of March 10 is 86 points and is characterized as "high". Thus, we expect the pair to move today between the levels of 1.1804 and 1.1976. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 1.1841
S2 – 1.1780
S3 – 1.1719
Nearest resistance levels:
R1 – 1.1902
R2 – 1.1963
R3 – 1.2024
Trading recommendations:
The EUR/USD pair started to adjust within the downward trend. Thus, today it is recommended to open new short positions with targets of 1.1841 and 1.1804 after the Heiken Ashi indicator turns down or after a rebound from the moving average. It is recommended to consider buy orders if the pair is fixed above the moving average, with the first target of 1.2024.
