4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - downward.
CCI: -96.6853
The EUR/USD currency pair was trading lower again on Wednesday, which is fully in line with our forecasts. We said that after a fairly strong (as for a short-term trend) trend, which took a month to build and thanks to which the euro rose by 450 points, a correction is simply necessary. And 100 points of correction is not enough. Thus, the continuation of the downward movement this week does not surprise us at all. The downward correction can be maintained up to the Murray level of "3/8"-1.1902. Formally, fixing the price below the moving average means a change in the trend for the euro/dollar pair. However, it is still the same correction, which can be worked out, according to the "Linear Regression Channels" trading system. But on a more global level, we are waiting for the resumption of the upward trend, since this is now the most global fundamental factor that we constantly talk about because it is the most important at this time. We are talking about the same factor of pouring trillions of dollars into the American economy, which banally increases the supply of the US dollar in the foreign exchange market. If the supply is growing, but the demand is not, then the dollar exchange rate is falling. However, today we will look at another factor that shocked analysts and traders yesterday.
The fact is that yesterday during the day, US Treasury Secretary Janet Yellen recorded an interview for The Atlantic during which she said that interest rates will have to rise slightly so that the US economy does not overheat. These words immediately affected the US dollar, which rose by 30 points against the euro within 5 minutes. That's all. There was no further reaction from the market, at least not from the currency market. However, the day after this comment by Janet Yellen, there was such a commotion on the web, as if Janet Yellen had raised the stakes on her own. Let's start with the fact that Janet Yellen is the US Treasury Secretary, whose previous post was just in the Fed (president). But it should be understood that at this time, Yellen has nothing to do with rates. Rates are "managed" by Jerome Powell, who is now the chairman of the Fed. Thus, what Janet Yellen thinks is very interesting. However, her words could easily be ignored. As we said above, there was no particular market reaction. Janet Yellen herself later said that she does not predict a rate hike, and also does not give any recommendations to the Fed. By the way, the words about the rates were not the only interesting ones in Yellen's interview with The Atlantic. The Treasury secretary also said that inflation is likely to accelerate in the US in the coming months, but the Fed is likely to quickly solve this problem. Yellen did not say how the Fed would address this issue. Yellen also made it clear in her interview that she is more interested in American families and the long-term impact of the pandemic on them, rather than inflation. According to Yellen, the main thing is that American families can return to normal life as quickly as possible. All in all, a rather interesting interview, which did not make any special sense. Imagine that John Ramsay, a gas station attendant at any gas station in the United States, gives an interview to a local newspaper, in which he says that he believes that rates should be raised and that the Fed will address this issue in the near future. So what? After this interview, everyone rushed to buy the dollar and sell off stock assets? Janet Yellen has the same attitude to betting as our fictional John Ramsay. Of course, an interview with her is always interesting, but in this case, it is no more than interesting. Jerome Powell has repeatedly made it clear that inflation will not be targeted in the near future. Periods of low inflation should be offset by high inflation, so the Fed won't be tightening monetary policy any time soon to contain it. The economic recovery is rapid, but not uniform. This is also something that Powell has said more than once. The head of the Fed prefers to wait for the full recovery of the economy and make progress for a long period before starting to talk at all about curtailing the quantitative stimulus program or raising rates. The Fed expects to reach full employment in the United States. The dot chart of expectations of FOMC members showed that the majority votes for a rate increase no earlier than 2023. And Jerome Powell himself openly stated that in the near future there is no talk of curtailing the QE program at all and that the markets will be warned of its completion. Thus, it was Jerome Powell who made it clear what the markets should expect and what they should not expect.
Thus, the fundamental background has not changed at all over the past day. Therefore, the euro/dollar pair can continue to trade according to the original plan and our forecast. During the current week, the pair may continue to be in a downward movement, which is a correction, after which we expect a resumption of the global upward trend, and the pair may rush to its 2.5-year high near the level of 1.2350. Thus, at this time, you can continue to carefully trade down, but be prepared for the resumption of the upward trend.
The volatility of the euro/dollar currency pair as of May 6 is 66 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1935 and 1.2067. 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 1.1935 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 1.2085 and 1.2146.
