4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - downward.
CCI: -101.0120
The EUR/USD currency pair continued to trade as expected on Tuesday. We said over the weekend that it would be nice to adjust after Friday's drop. And so it happened on Monday. On Monday, we noted that the correction is likely to resume after the upward pullback since the previous upward trend was 450 points and took exactly one month. Thus, a correction of 100 points in one day is frankly not enough. Thus, at the moment, the correction continues, although, in more global terms, the technical picture has not changed at all. We've talked about the euro/dollar situation many times before. After a strong upward trend in 2020, the pair corrected during the first three months of 2021, after which it probably completed the correction and began a new round of the upward trend, which we observed in the last month. We expect the end of the downward correction this week and the resumption of the upward trend. The fundamental reasons also remain the same. And they seem likely to support the European currency and put pressure on the dollar for a long time, as the money supply in the US continues to inflate, and this process is likely to continue in 2021. At least, now all the data speak in favor of this option. Joe Biden has proposed two new stimulus packages: "social needs" and the other for infrastructure. It is now assumed that both stimulus packages will be funded by tax increases for rich Americans and multi-corporations. However, we all understand that it may take several years to collect about $ 4 trillion in taxes. Thus, most likely, this money will again be raised through loans and from the Fed or in any other way, which does not change the essence of the matter at all. Money doesn't come out of thin air. They are either created in the central bank accounts or printed by the central bank. Therefore, all paths lead to the Fed.
What can at least theoretically affect the euro/dollar pair in addition to the global fundamental factor? We recently analyzed the pace of recovery in the US and EU economies. We found that the US has already recovered more strongly than the European one relative to the beginning of the pandemic. Theoretically, the US dollar can get support from this factor. In practice, we believe that this is a utopia. The factor of creating trillions of dollars out of nowhere is much more global and important. Thus, if nothing changes dramatically in the "foundation" in the near future, then, most likely, the depreciation of the dollar in 2021 will continue.
And what about the European Union? Nothing interesting is happening in the European Union right now. Problems with vaccination and orders for the supply of vaccines seem to have been resolved. It didn't speed up the vaccination process too much, but it still felt a little calmer. At least, all the media stopped writing daily about AstraZeneca and the disruption of supplies for the European Union. And also about the claims of many Euro-states to the European Commission. Everyone is waiting for the recovery fund to start forming, and then everyone will wait for its distribution this summer. Macroeconomic statistics in the European Union have improved slightly recently. It primarily concerns business activity and inflation. However, as the latest statistics have shown, only the main inflation is growing, and the basic (excluding fuel and food prices), on the contrary, is decreasing and is now less than 1%. At the same time, the unemployment rate remains quite high – 8.1%, GDP – negative in the first quarter of 2021. Thus, the EU does not have any special reasons for joy now. But all this news has nothing to do with the exchange rate of the European currency, which is currently at a distance of only 300 points from the 2.5-year highs reached at the junction of 2020 and 2021. And this is taking into account the drop in quotes by 100 points in recent days. Thus, there is no correlation between the macroeconomic statistics and the euro/dollar exchange rate now. And there are no global changes, as we have already said.
Jerome Powell, the Fed chairman, has already made a speech this week. However, he did not report anything new to the markets. In an interview with Fox, Powell said that the outlook for the US economy had improved recently, but the recovery is still uneven. He praised the positive impact of vaccination and fiscal stimulus on economic recovery. Thus, most likely, the pair's correction movement will continue this week, which may continue up to the Murray level of "3/8" - 1.1902.
The volatility of the euro/dollar currency pair as of May 5 is 74 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1947 and 1.2095. A reversal of the Heiken Ashi indicator upward will signal a new 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 has consolidated below the moving average and continues its downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1963 and 1.1947 until the Heiken Ashi indicator turns up. It is recommended to consider buy orders if the pair is fixed above the moving average with targets of 1.2095 and 1.2146.
