4-hour timeframe
Technical details:
Higher linear regression channel: direction - sideways.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -109.6056
On Thursday, July 1, the EUR/USD currency pair was trading quite calmly again. However, at the same time, it failed to overcome its previous local minimum reached on June 18. When trying to overcome the level of 1.1841 (the lower level of volatility on July 1), the price turned upwards and began an upward movement. At the moment, it is difficult to say how strong the upward movement will be. We have repeatedly said that the only factor that speaks in favor of further strengthening US currency is technical. In the 24-hour timeframe, there is a very high probability of forming another round of corrective movement, which may end below the minimum of the previous round of correction, near the level of 1.1700 or lower. However, there are no other reasons for further growth of the dollar at the moment. On the 4-hour timeframe, there are also purely technical factors that speak in favor of a possible continuation of the downward movement. It is the price below the moving average line and the direction of the lower channel of the linear regression down.
However, even if the quotes are fixed above the moving average, these factors will be leveled. It should also be noted that traders continue to work out macroeconomic statistics very selectively. We have already said repeatedly that most of the statistics, especially European ones, pass by the markets. The same applies to most of the speeches of Christine Lagarde or Jerome Powell, as well as other representatives of the ECB and the Fed. Although everything is much simpler here: the top officials of central banks sometimes speak 2-3 times a week. They cannot surprise traders with something every time and provide them with new important information. Thus, the pair continues to move under the influence of global factors. Recall that the global upward trend has been going on for a year and a half and can be resumed at any time since the factors that led to such a strong growth of the euro remain in force.
As mentioned above, the heads of the central banks of the ECB and the Fed can sometimes hold 2-3 speeches a week. It should be understood that not every speech can contain at least some valuable information related to monetary policy or the economy. For example, the Central Bank heads can talk about the banking sector or cryptocurrencies and their regulation. Or they can repeat those theses that the markets have long known. For example, this week, Christine Lagarde said that the EU economy still faces risks caused by various mutations and strains of the "coronavirus." Lagarde noted that the economic prospects had improved thanks to vaccination, and it is likely that the most pessimistic scenarios will be avoided. However, the spread of new strains may lead to new problems for the European economy. Earlier, Lagarde made it clear to the markets that the European economy is different from the American one, and the same high recovery rates should not be expected from it. Lagarde has also repeatedly stated that there is no question of curtailing the PEPP program since the European economy is still weak and requires monetary stimulus. Thus, the rhetoric of Christine Lagarde remains very pessimistic for the European currency. Many macroeconomic indicators of the state of the European economy remain pessimistic. However, fortunately for the euro, many of them are also actively ignored by traders.
For example, the day before yesterday, the consumer price index for June was published, which began to slow down again, having just reached the target level of 2.0% y/y. From our perspective, this is very bad news for the European Central Bank since the "base months" for which the comparison is made for current inflation indicators are still very weak. And even on such a "base," inflation in the EU cannot accelerate above 2%. In addition, the main consumer price index (base) decreased to 0.9% y/y. Recall that the base index does not consider changes in energy and food prices, so it is considered more accurate. Namely, oil (and other fuels) have recently increased significantly in price. Accordingly, we can conclude that prices are rising not because they are growing by themselves but because energy carriers have become more expensive, more or less included in almost all goods. Thus, inflation in the EU remains quite weak, from our point of view. The unemployment rate is another macroeconomic indicator that did not interest traders, although it fell from 8.1% to 7.9% at the end of May. The euro/dollar pair went up several dozen points after its publication. However, this is not the reaction that traders expected. Thus, the general conclusion is as follows:
- Market participants still show that they are not ready to work out every macroeconomic report.
- They are not very interested in European statistics at all now.
- I am waiting for the Nonfarm Payrolls report.
- Global fundamental and technical factors are still of great importance.
Recall that the US currency has fallen sharply against the euro and the pound in the last year and a half. However, the American economy is recovering from the crisis much faster than the European or British one. Nevertheless, it is still very difficult for the dollar to become more expensive. The same inflation in the US is much higher than in the EU and is 5%. Even if this is a temporary value, it shows how fast the dollar is depreciating. In general, in the long term, we expect a resumption of the upward trend. Today's report on Nonfarm Payrolls can help this. However, the pair still retains the prospects of falling to 1.1700 or slightly lower.
The volatility of the euro/dollar currency pair as of July 2 is 51 points and is characterized as an "average." Thus, we expect the pair to move today between the levels of 1.1798 and 1.1900. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 1.1841
S2 – 1.1780
S3 – 1.1719
Nearest resistance levels:
R1 – 1.1902
R2 – 1.1963
R3 – 1.2024
Trading recommendations:
The EUR/USD pair has started to adjust. Thus, today it is recommended to open new short positions with targets of 1.1798 and 1.1780 after the reversal of the Heiken Ashi indicator down. It is recommended to open buy orders no earlier than fixing the price above the moving average line and the Murray level of "4/8" with targets of 1.1963 and 1.2024.
