4-hour timeframe
Technical details:
Higher linear regression channel: direction - sideways.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -57.3340
The EUR/USD currency pair continued to trade quite calmly on Wednesday, May 12. And after the publication of US inflation, there was a bright surge in volatility. Thus, the upward trend continues. And even taking into account that the quotes are fixed below the moving average line, this still means a round of downward correction within the upward trend. Of course, you should not trade for an increase now.
Nevertheless, we have a clear trading system, the rules of which should be followed. However, if we look at the situation as a whole, we cannot conclude that something has changed in the foreign exchange market that can radically change the direction of the euro/dollar pair. Recall that in global terms, the euro/dollar pair grew in the last nine months of 2020, then corrected for three months and resumed the upward trend. For the past month, the quotes have been growing, and this growth will continue. It makes no sense to look for the fundamental background now. There is no point in finding the factors that have pushed the European currency up over the past five weeks. It's simple.
The US economy continues to be saturated with trillions of dollars, so the dollar continues to fall. Note that the economic situation in Europe is much worse than in the United States. The pace of economic recovery differs dramatically from each other. If in the United States, according to the results of the first quarter of 2021, high growth was recorded – 6.4%, then in the European Union – a new reduction in GDP was recorded. In the second quarter, the situation may improve slightly for Europe. However, it is unlikely to change dramatically. The European Union is much less stimulating its economy, much slower to vaccinate, and in some EU countries, the third "wave" of the "coronavirus" has recently raged. All this has a negative impact on the growth rate of the economy. But at the same time, it is the European currency that continues to grow, so the conclusion is obvious: the markets are now paying attention, not to economic factors. Perhaps their actions do not matter at all because when trillions of dollars are poured in, it is this factor that is most important and most strongly affects the markets and currencies. Remember the COT reports, which do not show a new increase in long positions for large players.
Meanwhile, the European Commission released its economic forecasts yesterday. According to this report, global GDP in 2021 will grow by 5.6% instead of the +4.6% in the previous forecast. Next year, the forecast is +4.3% of global GDP. The document says that the economic recovery in 2021-2022 depends directly on the speed with which vaccination will be carried out worldwide and how effective it will be to fight against the pandemic. Representatives of the European Commission emphasized that the risks have weakened recently, but they remain. The report also says that the main drivers of global GDP growth will be China, which managed to curb the virus in the early stages and has been recovering from the crisis for a long time, and the United States, where vaccination is very fast. It is also noted that the growth of the Chinese economy in 2021 will be 7.9%, and in 2020 – an increase of 2.3% was recorded. It is almost the only indicator of economic growth in the world in 2020. It becomes absolutely clear why the Fed and the US government are pouring trillions of dollars into their economy to stimulate it. China is catching up, and this cannot be allowed. Therefore, the US authorities are ready to take any measures to remain in first place in the world in terms of GDP and prevent China's approach.
In the European Union, GDP is expected to grow by 4.2% in 2021 and by 4.4% in 2022. By and large, the document says that the economic growth this year and next will only be a recovery from the fall in 2020. If the economy in the United States can reach the pre-crisis trajectory as early as 2021, then in the European Union – not before the end of 2022. It suggests that the European economy is lagging behind the American one, and the pandemic has made this process even worse. The report also says that the EU economy is "just beginning to recover." The EU also expects average inflation of 1.7% in 2021. As for the "coronavirus", for the European Union, there is also a high dependence on the results of vaccination and new strains of COVID-2019, which are more resistant to existing vaccines.
In the United States, growth is expected to be 6.3% in 2021 and 3.8% in 2022. At the end of 2020, US GDP declined by 4.6%. The European Commission highly appreciates the monetary and fiscal stimulus, which made possible the impressive growth, which returns the US economy to the pre-crisis growth trajectory.
What does all this mean for the euro/dollar currency pair? By and large, nothing. It is just interesting information that can provide minimal support to the US currency in the short term. We continue to draw traders' attention to how the impressive growth of the American economy is achieved. If the same amounts were poured into the European Union through fiscal stimulus, the European economy would feel much better. However, the European Union is not the United States. It is 27 countries. Some are richer. Some are poorer. Someone needs more money for recovery, someone less. The European Union is 27 separate economies, connected, but it is not a single whole. Therefore, the EU managed to approve a recovery fund for 750 billion euros is already very good. When it starts to be distributed, the recovery of the European economy will accelerate slightly. Still, this moment in 2021 is unlikely to play any significant role in the prospects of the European currency.
The volatility of the euro/dollar currency pair as of May 13 is 75 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2003 and 1.2153. A reversal of the Heiken Ashi indicator to the top will signal a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.2024
S2 – 1.1963
S3 – 1.1902
Nearest resistance levels:
R1 – 1.2085
R2 – 1.2146
R3 – 1.2207
Trading recommendations:
The EUR/USD pair has consolidated below the moving average and is currently in a downward movement. Thus, today it is recommended to stay in short positions with targets of 1.2024 and 1.2003 until the Heiken Ashi indicator turns up. It is recommended to consider buy orders if the pair is fixed above the moving average line with targets of 1.2146 and 1.2207.
