4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -50.9428
On Monday, June 21, the EUR/USD currency pair was already trading in its usual mode. The volatility was low, and the collapse of the quotes finally ended. In principle, in the articles for Friday and Monday, we drew attention to the fact that the US currency grew too much following the results of the Fed meeting. Remember how it usually happens when the results of the next meeting are summed up? If the meeting is a passing one, then there may be no reaction at all, or the pair will jump up and down by 30-40 points, and that's all. If the meeting and its results are important, then a strong movement is possible. Thus, we do not believe that the reaction of traders in the form of an increase in the US currency by 250 points can be called reasonable and logical. There were some "hawkish" notes at the Fed meeting. However, these are just notes, nothing more. The pair reacted as if the Fed had already raised the rate and ended the quantitative stimulus program. What can be the reason for such a strong strengthening of the dollar, and what to expect next? From our point of view, the global picture of the situation remains the same. The US currency still has minimal reason to grow. We have already said that the main factors that affect the trading pair are the injection of huge amounts of money into the US economy that inflates the money supply in the US, which devalues the currency within the country, and the technical factor that suggests that the global "dollar" trend ended in 2017. These factors have not changed. The strong growth of the US economy in recent quarters is good. However, this factor has only a local impact on traders' reactions to macroeconomic reports, which can help us understand how quickly the economy is recovering. Therefore, we consider the current drop in the pair's quotes as an accident. Perhaps the pair was overbought too much. Significant players may have entered the market with large deals (known in the next COT reports). Anyway, the US currency, which stood in one place for a month and suddenly collapsed downwards, does not suggest that this movement was logical.
In the meantime, we would like to remind you that both the ECB and the Fed do not need expensive national currencies. The Fed is doing a great job with its strategy to devalue the dollar, although this is not the main goal for the States. However, the European Union does not need an expensive euro. Thus, the rhetoric of the ECB representatives and the Fed's representatives may be such that it does not cause any strong growth of the national currency. The Fed failed to achieve this goal last week. Jerome Powell and the Fed tried to prove to the market that no one would curtail the program of stimulating the economy and even more so raise the rate. However, the markets still regarded the phrase "about the beginning of discussing the possible end of the QE program" almost as an increase in the key rate. Once again, it is very difficult to assess the results of the last Fed meeting by themselves since no changes were made to monetary policy. But the very next day, representatives of the ECB took the stage, who also tried to put pressure on the euro from time to time, which has grown strongly against the dollar over the past year and a half. Philip Lane, the ECB's chief economist, said it was too early to consider ending monetary stimulus at this time. Lane also made it clear to the markets that it is unlikely that the QE and PEPP programs will be completed in 2021. Thus, by and large, the Fed is just beginning to think about curtailing stimulus, and the ECB immediately puts this matter on a longer-term perspective. However, none of the central banks have even started discussing this yet. Thus, there is not even much difference between the policies of central banks right now. The only thing is that the Fed continues to buy bonds for much larger amounts than the ECB, which harmed the dollar through the growth of the money supply in the United States. ECB head Christine Lagarde also spoke on Monday. However, judging by the fact that the European currency moved very weakly that day, she did not tell the markets anything interesting. However, this is not necessary since the markets are well aware of the mood of the members of the ECB monetary committee. The same Lagarde has repeatedly stated that the EU economy is still too weak to talk about the end of the stimulus. Such an action as raising rates is not even talked about in Europe right now. And these words and inaction of European officials are indeed confirmed by macroeconomic statistics, which clearly say that the European economy is recovering. Recall that in the fourth quarter of 2020 and the first quarter of 2021, European GDP declined. In other words, what kind of tightening of monetary policy in Europe can we talk about now?
From this, we can draw the following conclusion. First, global factors have not changed, so we are still waiting for a new round of depreciation of the US currency. Secondly, the dollar may rise even more, but only within the global correction visible on the 24-hour timeframe. We expect that the euro/dollar pair quotes may fall to the previous low of March 31. Then you get a classic three-wave structure, which is often used in wave analysis. After the pair reaches the 17th level, we expect an upward reversal and the formation of a new upward trend based on the same factors that allowed the previous upward trend. As for the "macroeconomics" and "foundation," there are quite a few events planned for this week that can be reflected on the chart of the currency pair. We believe that there will be no significant events this week at all. In the United States and the European Union, there will be several reports that have a "loud" sign. There will again be several speeches by Christine Lagarde, Jerome Powell, and other representatives of the ECB and the Fed. The meetings of the ECB and the Fed have already taken place, so all the necessary information is already available to traders.
The volatility of the euro/dollar currency pair as of June 22 is 91 points and is characterized as "high." Thus, we expect the pair to move today between the levels of 1.1825 and 1.2007. A reversal of the Heiken Ashi indicator downwards will signal a new round of downward movement.
Nearest support levels:
S1 – 1.1902
S2 – 1.1841
S3 – 1.1780
Nearest resistance levels:
R1 – 1.1963
R2 – 1.2024
R3 – 1.2085
Trading recommendations:
The EUR/USD pair has started to adjust. Thus, today it is recommended to open new short positions with the targets of 1.1841 and 1.1825 after the reversal of the Heiken Ashi indicator down. It is now recommended to open buy orders no earlier than the price is fixed above the moving average line with a target of 1.2085.
