4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 9.7278
On Thursday, July 8, the EUR/USD currency pair continued to trade very calmly, maintaining a downward trend. A day earlier, the bears managed to lower the pair to the level of Murray "1/8"-1.1780. However, they failed to overcome it. There was a rebound upward and a new round of correction to the moving average line. Although the pair has continued to decline in the last two weeks, during this time, it has lost 150-160 points. In total, as part of the last round of the global correction, almost 500 points were lost in a month and a half. Most of this distance was covered in the days when the Fed summed up the results of its last meeting. Thus, it turns out that the euro/dollar pair has simply been correcting for the last month and a half and can complete this correction at any time. Recall that on the 24-hour timeframe, the technical picture implied the formation of a new round of corrective movement with a target of 1.1700 or slightly lower. Thus, so far, this option is executed almost perfectly. During the formation of this round of correction, the Fed slightly pleased the dollar bulls with the words that it is ready to start discussing the curtailment of the asset purchase program in the near future. However, even then, two weeks ago, neither the terms nor the conditions for the completion of the QE program were named. Thus, even then we drew attention to the fact that the dollar rose in price not quite reasonably for two days by 250 points. Now everything looks as if the bears are pushing the pair down with their last strength. However, it is very difficult to find clear and specific reasons for further strengthening of the US dollar now. The economy in the United States is recovering faster than in Europe. However, traders were not pleased even with the latest Nonfarm Payrolls report, after which the US dollar unexpectedly fell in price, although everyone was waiting for the opposite movement. In general, we continue to consider the level of 1.1700 as the lowest possible point for the euro/dollar pair in the current conditions.
Since the minutes from the last Fed meeting were published late on Wednesday, we would like to focus on them. At the same time, it is hardly worth talking about the theses that were contained in the protocol itself. The most important thing is that the Fed has confirmed its intention to start discussing a possible curtailment of the quantitative stimulus program. And now think about it and carefully read this phrase. Roughly speaking, the Federal Reserve admits that in the near future it will begin to discuss the terms and conditions for curtailing the QE program. The following questions remain unanswered: When this program will begin to shrink in volumes (now $ 120 billion per month)? When will it cease to operate? What conditions should be the state of the US economy, inflation, and the labor market for the Fed to decide on such a step? Accordingly, now it makes no sense to even really assume a certain deadline for the completion of this program. Imagine if some well-known economist or investor would say now that in a year the Fed will begin to wind down the QE program. What would have changed? Nothing. It would be just a forecast from a person who has nothing to do with the Fed. And what information did the Fed give us? Roughly speaking, it sounds like this: "someday, if everything is in order, the regulator will begin to reduce the volume of asset repurchases." How does this help traders and investors in understanding the market and its prospects? No way. If the Fed had not made such a statement, the markets would still have expected the same thing. The Fed will begin to reduce the QE program some time, especially if the economy and the labor market continue to recover. Thus, if in the last two weeks the US currency has been growing on this factor, then it is time for it to stop doing this since this is not the basis that can support the high demand for the dollar for a long time.
I don't even want to pay attention to other theses contained in the protocol. The entire document was filled with expressions "we are patient", "we will continue to observe", "we are ready to react", "we expect recovery", "risks remain", and so on. It is what we hear at every meeting of almost any central bank in the world in recent months. The question is, what does all this mean for the euro and the dollar? The fact that the situation in the European Union is more tense, and the economic recovery is slower is clear as day. But so far, the US currency cannot extract any tangible dividends from all this. We believe that the factor of injecting trillions of dollars into the American economy continues to put pressure on the dollar and sooner or later it will rush down again. The latest data show that the monetary aggregate M0 in the United States has almost doubled in volume since the beginning of 2020 – from 3.5 trillion dollars to 6. The monetary aggregate M1 has grown from 4 trillion to 19 trillion over the same period. The similar M1 monetary aggregate in the European Union has grown from 9 to 10.6 trillion euros over the same period. The difference is on the face. Even if this data cannot be taken literally, it is still a huge increase in the money supply that can not but provoke inflation and depreciation of the US currency. After all, the American economy is showing such a crazy pace of recovery precisely because the Fed and Congress are pouring trillions of dollars into the economy. Naturally, if you pour the same trillions of dollars into the economy of Bangladesh, the result will be amazing. The difference is that Bangladesh cannot inject so much of its national money, as it will cause hyperinflation, and the US dollar is almost an international currency that is accepted almost everywhere, so it is not depreciating at such a pace, despite the huge cash injections.
The volatility of the euro/dollar currency pair as of July 9 is 65 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1774 and 1.1904. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward 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 started a new round of correction. Thus, today it is recommended to open new short positions with targets of 1.1780 and 1.1719 in the event of a price rebound from the moving average line. It is recommended to open buy orders now no earlier than fixing the price above the moving average with the targets of 1.1902 and 1.1963.
