4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -36.7318
The EUR/USD currency pair on Friday began a new round of corrective movement and even consolidated just below the moving average line. Thus, the pair's quotes have moved away from their highs. However, for the long-term prospects of the European currency, this means absolutely nothing. We have repeatedly talked about the "global factors" that remain in favor of the European currency and against the dollar. Therefore, most likely, the pair will resume its upward movement. Moreover, the bulls have very little to go before the highs of February 25 and January 6. Usually, the price does not end the upward trend near its previous highs. Therefore, we expect the northward movement to continue well above these levels. And even more so, because nothing changes for the euro/dollar pair. Earlier, more than six months ago, we sometimes expressed surprise at why both the euro and the pound show growth against the dollar? However, six months ago, in the States, everything was not very good, as the economy collapsed in the second quarter by a record 31.4%. The odious Donald Trump sat out as president and intended to go down in history and slam the door loudly for the last time. In addition, the "coronavirus" epidemic continued to rage, which infected and killed the most citizens in the United States. But now the situation is reversed. The head of the country may not be the best president in its entire history, but the president whose words do not want to laugh every day. Joe Biden does not get involved in scandals, does not offend anyone, and is generally much more good-natured than Trump. Yes, sometimes Biden can stumble and fall, or mix up the words in the text of the speech, or come out with a bunch of cheat sheets to journalists. But they still understand that the person is 78 years old. And in the end, the people chose such a president, so to criticize Biden for his senile clumsiness and forgetfulness is the same as to criticize the people of America for his choice. The economy in the United States is currently recovering very quickly, and the rate of vaccination of the population is one of the highest in the world. And yet, the dollar is falling in those six months, and the euro is growing. Because, as we have already said, the factors influencing the euro/dollar exchange rate are different now.
By and large, the attention of many market participants is currently focused on central banks and the most important indicators of the state of the economy, such as inflation. Only those who are not interested in bitcoin are not talking about the possible response of central banks to the growing inflation everywhere. And there aren't many of them. The Fed's position is already very clear to us since Jerome Powell has repeated enough times that the quantitative stimulus program will be in effect for a long time, and the economy, although recovering quickly, is doing it unevenly. But in the European Union, the situation is a little different. Much weaker. The economy, as we have already said, is recovering very poorly. And so, if there is a need for as much and long-term quantitative stimulus as possible, it is in the European Union. Because in Europe, the economy has only shrunk in the last two quarters, not grown. Therefore, what kind of curtailment of the incentive program can we even talk about? "We are committed to maintaining favorable funding conditions through the PEPP program, which will run until at least March 2022. It is still too early and there is no need to discuss long-term issues," Christine Lagarde said this Friday at the Eurogroup meeting in Lisbon. Under the pressure of this "dovish" rhetoric, the European currency declined on Friday, although it most likely declined just for show. Recall that a strong upward trend persists, so a pullback of 50-60 points is almost nothing. The markets got an opportunity to fix long positions a little. The markets realized this opportunity. Nothing prevents the euro/dollar pair from resuming its upward movement on Monday.
In addition, on Friday, the European Union published business activity indices in the services and manufacturing sectors. However, these indicators rose to 55.1 and 62.8 points, which indicates an acceleration of the European economy. But, unfortunately, it has started to accelerate so far at a speed of 0 km/h. Business activity indices in the US services and manufacturing sectors were also published on Friday. And here the growth of indicators was even stronger. In the services sector, the index rose to 70.1 points, and in the manufacturing sector – to 61.5. These figures are striking but quite logical for the growth rates that the US economy is currently showing. Recall that in the first quarter, GDP growth was 6.4%, and in the second quarter is projected at 12.9%.
Thus, even the ordinary statistics now speak in favor of the fact that the United States feels much healthier than Europe. We should also not forget that in the European Union, vaccination continues. However, it takes place at a much lower rate than in the United States. And this is another factor that slows down the recovery of the European economy. What can change in the near future? The European Union needs to speed up vaccination, although, as we can see from the latest data on business activity, the economy has already begun to accelerate. For the US currency, the US authorities and the Fed must stop pouring hundreds of billions of dollars into the economy, inflating the money supply in such a way that leads to a strong fall in the dollar. However, at the same time, let me remind you that it is much more profitable for the States themselves to have a "cheap" dollar than an expensive one. Especially now, when the national debt has almost doubled and it needs to be serviced. Thus, the more the US currency depreciates, the easier it will be for the US government to deal with its debts. And in general, to be honest, the problem of American debt in the United States is not such a big problem. The Fed can print as much money as it wants, the dollar remains the world currency and a certain part of the debts of the US government. Can the US government's debt to the Fed be considered serious?
The volatility of the euro/dollar currency pair as of May 24 is 64 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2115 and 1.2243. The reversal of the Heiken Ashi indicator back up signals the resumption of the upward movement.
Nearest support levels:
S1 – 1.2146
S2 – 1.2085
S3 – 1.2024
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading recommendations:
The EUR/USD pair has started a new round of corrective movement. Thus, today it is recommended to open new long positions with targets of 1.2243 and 1.2268 if the price remains above the moving average line. It is recommended to consider sell orders if the pair is fixed below the moving average, with the first targets of 1.2115 and 1.2085.
