The EUR/USD currency pair started a new round of correction on Monday, continuing to be located below the moving average line. Thus, now we can say that there is a fairly strong support level near the 99th level since its price has not been able to overcome it for more than a week. On the one hand, this is not surprising since if we have a downward trend, it does not mean that the pair will fall every day. On the other hand, the European currency has already fallen very low, which increases the likelihood of the downward trend ending. We have already repeatedly said that any trend, as a rule, ends unexpectedly and abruptly. So far, we do not see any signs of its completion, but it is impossible to prepare for its completion. Naturally, the closer the completion is, the fewer traders want to sell the pair, possibly at the lows of the entire trend. Therefore, the fact that market participants are now a little cautious can also be understood.
Nevertheless, the fundamental background is now such that it is still very difficult to count on the strong and long-term growth of the euro. If geopolitics does not deteriorate (the conflict between Kosovo and Serbia will be settled this weekend), then the "foundation" will deteriorate. Jerome Powell said on Friday that interest rates would continue to rise and remain high for a long time. Inflation has started to fall, but so far, no one understands why. Was it a "one-time action" or the beginning of a new trend? In any case, the rate will be raised in September by another 0.5%, and maybe by 0.75% immediately, for the third time in a row. Therefore, there is no need to talk about any "dovish" approach by the Fed right now. And if so, then the growth of the US dollar remains the most likely scenario since the ECB, at the same time, continues to "pretend" that it is raising the rate. Perhaps the European regulator will even allow another increase in September. Still, the balance of power between the monetary policies of the ECB and the Fed will not change from this.
Traders do not expect a decrease in inflation after one ECB rate hike.
There won't be a lot of macroeconomic and fundamental events this week. But there will be important ones among them. On Wednesday, the European Union will publish an inflation report for August. According to experts' forecasts, the consumer price index will rise by 9.1–9.1% y/y this time. The increase, thus, may be 0.1-0.2%, which, in principle, is not much, but who said that the forecast would come true? Given the ECB's passivity, we tend to expect higher inflation. On Thursday, the index of business activity in the manufacturing sector for August (the final value) will be released, which will most likely be below 50.0. Traders are already ready for this, so a reaction is unlikely to follow unless the index collapses below the preliminary value (49.7). Also, the unemployment rate will be published on this day, which few people are interested in right now. Unemployment in the EU remains high – 6.6%. For example, it is twice as low in the States or the UK. There will be no more important events in the European Union this week.
However, even among the above reports, only the inflation report can affect the movement of the euro/dollar pair. At the same time, it is impossible to say exactly how it will affect. Recall that rising inflation in the US means that the Fed will increase its pressure on monetary policy. Rising inflation in the European Union does not mean anything. The ECB seems to have taken up the problem of high inflation but is not ready to neglect economic growth as the Fed does. If the EU economy slips into recession, it will mean that unemployment will rise even more, so the regulator is forced to balance on the edge of the abyss. Thus, there will be a reaction to the inflation report with a probability of 90%, but we do not undertake to predict exactly that reaction. So far, the euro currency is still in its most unfavorable position.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of August 30 is 112 points and is characterized as "high." Thus, we expect the pair to move today between 0.9893 and 1.0115. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 0.9949
S2 – 0.9888
Nearest resistance levels:
R1 – 1.0010
R2 – 1.0071
R3 – 1.0132
Trading Recommendations:
The EUR/USD pair is being adjusted again. Thus, new short positions with targets of 0.9949 and 0.9893 should now be considered in case of a price rebound from the moving average. It will be possible to consider long positions after fixing the price above the moving average with targets of 1.0071 and 1.0115.
Explanations of the illustrations:
Linear regression channels – help to determine the current trend. If both are directed in the same direction, then the trend is strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.
The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
