4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 166.8065
The EUR/USD currency pair on Tuesday, as we expected, was trading much more actively than on Monday. The upward movement continued without any corrections or pullbacks. Thus, at this time, the US currency is again falling in price. Recall that we have constantly been saying over the past few months that the US dollar will continue to fall in 2021, despite all the fundamental and macroeconomic factors. And in this article, we will look at the key indicators of the American and European economies to make sure of this. In the meantime, let us recall the main thing. The upward trend began in March 2020. If its first months could be attributed to the panic state of the market and not taken into account, then the further weakening of the US currency has two significant reasons.
First, the American economy immediately began to pour much more money than the European one. Both the ECB and the Fed have started printing money, and the US and EU governments are trying to support the economy through fiscal stimulus. However, the amounts in the United States and the European Union differ from each other at least twice. Recall the important interpretation of the Fed: the regulator will make purchases of securities under the incentive program for at least $ 120 billion per month. In the ECB, for comparison, this amount is 80 billion euros per month, and the total size of the PEPP program is now 1.85 trillion euros. And the Fed immediately made it clear that they would print as much money as necessary, without any restrictions. Thus, according to rough estimates, the money supply in the US has increased at least twice as much as in the EU over the past year.
Therefore, the US dollar is experiencing enormous pressure on itself. Not even because traders and investors actively sell it (although this is also why), but because the dollars themselves are becoming more and more. Secondly, we have already talked about global trends. In short, no currency can always rise or fall, even without taking into account the corrections. Of course, if we are not talking about the currencies of third world countries or developing countries, where governments purposefully do not allow them to become more expensive against the dollar or the euro. But the dollar and the euro are comparable currencies, as the EU and US economies are the strongest in the world. Thus, these currencies alternate trends with each other. On average, one trend takes from 8 to 12 years. Since the last upward trend began in 2008 and presumably ended in 2017, we can assume that the "euro trend" began in 2017. Therefore, in the next few years, the euro currency will have a better chance of growth from a technical perspective. Thus, these two factors will continue to push the dollar down and the euro currency up from our perspective. However, the macroeconomic background from the European Union is now very weak and not comparable to the background from the United States.
Although the US economy is recovering unevenly, as Jerome Powell and other Fed officials have repeatedly said, it is still recovering. In contrast to the European economy, it can show minimal growth. The US economy is showing much higher recovery rates. Let's compare the GDP figures. In quarterly terms, the EU's GDP lost 3.8% in the first quarter of 2020, 11.6% - in the second, in the third - recovered by 12.5%, in the fourth - decreased by 0.7%, and in the first 2021 - fell by another 0.6%. According to experts' forecasts for the second quarter (2021), the European economy will grow by 1%. In the United States, GDP declined by 5% in the first quarter of 2020, by 31.4% in the second quarter, grew by 33.4% in the third, by 4.3% in the fourth, and by 6.4% in the first quarter of 2021. The economy is projected to grow by 12.9% in the second quarter of 2021.
Thus, there is no doubt about which economy is feeling more confident at this time. But at the same time, it is the European currency that continues to rise in price. Because the American economy is growing, but it is doing so thanks to the trillions of dollars poured into it by Congress, the Treasury Department, and the Fed. Roughly speaking, if the same amounts were poured into the EU, the European economy would recover much faster. But in the European Union, the bureaucracy and the interests of the 27 member states and each needs to be considered. It is evident to everyone that it is much easier to negotiate within one country than in 27 countries. Thus, despite the crazy growth of the US economy, its currency continues to fall and is likely to be engaged in this difficult task throughout the current year. And it benefits the States. It is what Donald Trump said during his entire presidential term: "America does not need an expensive dollar." The European Union also does not need an expensive euro. However, in Europe, the impact on the exchange rate is increasingly difficult.
Thus, we believe that all the factors that should support the dollar now do not matter and are not considered. They are overlapped by more global factors, which we discussed above. Therefore, we should expect the upward trend for the euro/dollar to continue. By the way, the pair is already trading near its last local high at the level of 1.2243, and it may grow to a 3-year high near the level of 1.2349 in the near future.
The volatility of the euro/dollar currency pair as of May 19 is 69 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2148 and 1.2286. The reversal of the Heiken Ashi indicator downwards signals a possible new round of corrective movement.
Nearest support levels:
S1 – 1.2207
S2 – 1.2146
S3 – 1.2085
Nearest resistance levels:
R1 – 1.2268
R2 – 1.2329
Trading recommendations:
The EUR/USD pair continues its upward movement. Thus, today it is recommended to stay in long positions with a target of 1.2268 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders if the pair is fixed below the moving average line with a target of 1.2085.
