4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -7.0251
The EUR/USD currency pair continued to move slowly on Wednesday, July 21. The volatility of the pair remains relatively weak, and the macroeconomic background is completely absent. However, everything can change today, as the results of the ECB meeting, which traders have been waiting for since the beginning of the week, will be summed up. However, more on this is below. In principle, nothing has changed for the euro/dollar pair during the first three trading days of the week. Its technical picture on all timeframes remained the same. Both the prospects of the pair and its fundamental background remained the same. Although what kind of fundamental background can one talk about now if traders have received no important news since the beginning of the week? Based on this, we still expect that the downward movement will end near the level of 1.1700. We can all see perfectly well that the pair is slowly moving down. It suggests that traders are very reluctant to buy the dollar and sell the euro. Although the COT reports over the past four weeks indicate a significant weakening of the "bullish" mood, nevertheless, we remind you that the most important factor of injecting trillions of dollars into the American economy remains in action. This factor repeatedly overlapped with COT reports last year. It may overlap them in this as well. Let's explain how it works. According to the latest COT reports, major players are getting rid of long positions in the euro and opening short ones. However, during all this time, the euro has not fallen too much and has fallen in price. We have already said that most of the pair's way down was covered in a couple of days after the last Fed meeting. Thus, it turns out that the major players are actively selling the euro. However, the euro itself is not in a hurry to go down. This effect can be observed since the money supply in the United States continues to grow, and the supply of the dollar in the foreign exchange market is growing accordingly. The US currency becomes cheaper as if by itself, especially due to inflation, which devalues it. And, recall, the inflation in the States is now 5.4%. Consequently, major players cannot cover the pace of natural depreciation of the US currency with their sales of the European one.
As mentioned above, the key event of this week will certainly be the ECB meeting and its results. Recall that the ECB has not changed the parameters of monetary policy for a long time. The rates have remained "ultra-low" for several years. The PEPP program was last changed in size last year. The only change that could be noted in 2021 was an increase in the pace of asset repurchases from the open market within the framework of this very PEPP program. A couple of weeks ago, Christine Lagarde announced that the ECB is changing its approach to targeting inflation, and now it is not "2% or slightly lower", but "just 2%". Traders did not react to this "important information" at that time, so there is no reason to expect that they will react to it on Thursday. Thus, with a high degree of probability, the rhetoric of Christine Lagarde will remain unchanged. The ECB will again state that the PEPP program will continue to operate until the end of March 2022, and in general, until the regulator decides that the crisis caused by the pandemic has passed. Also, the ECB will again use inflation as a target, which should be "about 2%" in the medium and long term. At the moment, nothing can be said about European inflation. The consumer price index barely reached the level of 1.9% by June of this year and did not even show any acceleration in the last month, unlike American or British inflation. Therefore, it is far from the fact that the CPI will generally continue to grow in the European Union. And if it does not grow, then the ECB will have no reason to complete the stimulus.
Moreover, as one, the heads of central banks have stated that the acceleration of inflation is a temporary phenomenon caused by rising energy prices and the low base of last year. Thus, in the coming months, inflation may begin to slow down. But if the US inflation will slow down from the current 5.4%, in the UK – from the current 2.5%, then in the European Union – from the current 1.9%.
In general, the ECB remains the only one of the three central banks of interest to us, which does not give any signals about a possible tightening of monetary policy at all. The ECB leaders openly declare that there is no point in even hoping for this in 2021. Thus, Christine Lagarde is unlikely to change her rhetoric suddenly and introduce "hawkish notes" into it. Based on this, we can say with almost absolute certainty that the euro is unlikely to receive any support from the ECB today. Of course, you should always leave a few percent probability for an unexpected and illogical reaction to the market. Even in recent weeks, there have been several times when strong macroeconomic data provoked a market backlash. For example, now the pair is crawling down with the last of its strength, and it seems that some important event can give it an upward momentum. Such an event can easily become an ECB meeting, whatever its results and whatever the rhetoric of Christine Lagarde. Therefore, today is very important for the prospects of the euro/dollar pair. However, at the same time, the ECB meeting may also not cause any reaction if it is frankly passing. In any case, it is not recommended to trade during Christine Lagarde's speech. It is better to wait for the results to be summed up and then analyze the situation.
The volatility of the euro/dollar currency pair as of July 22 is 49 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1749 and 1.1847. 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 again adjusted to the moving average. Thus, new short positions with targets of 1.1749 and 1.1719 are possible today if a price rebounds from the moving average line. Purchases of the pair will be possible not earlier than the price-fixing above the moving average line with targets of 1.1841 and 1.1902.
