4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -7.8804
On Wednesday, January 20, the EUR/USD currency pair remained below the moving average line. Thus, the downward trend for the pair has been maintained and the downward movement can be continued. Yesterday was marked only by the inauguration of Joseph Biden. We can not say that something went wrong, thus, we can not conclude that the new round of strengthening of the US currency is somehow connected with this event. From a technical point of view, everything still looks like the beginning of a new long-term downward trend. In recent months, we have repeatedly drawn the attention of market participants to the groundlessness of the strengthening of the euro and the fall of the dollar. Now, perhaps, the period of "debt repayment" has begun. At least that would be logical. The euro currency is heavily overbought, and this is already regularly stated even by the head of the ECB, Christine Lagarde, who rarely touches on such issues, as well as other officials of the regulator. Thus, from our point of view, the fall of the euro currency is justified by all the factors. On the other hand, some forces still forced market participants, especially major players, to buy the euro and sell the dollar in recent months. Thus, if the upward trend suddenly resumes now, then this movement can again be attributed to the "speculative factor" and not even try to explain it fundamentally and technically.
As for the fundamental background, as we said earlier, there are now several interesting topics that require analysis and tracking. However, we still cannot conclude that any of these topics affect the dollar or euro exchange rate at this time. Let's start with the fact that the European Union is now generally a news "calm" and nothing interesting is happening. At the beginning of the year, Christine Lagarde made a speech, however, she did not tell the markets anything interesting. All the most interesting things are happening now in the United States, where Donald Trump at the end of his presidential term not only provoked a new political "micro-crisis", but also managed to do several things that will forever go down in history, and may also cost him a lot of politics in the future. But we have already talked about all this more than once. How to explain the fact that the US dollar is only getting stronger with the beginning of this "micro-crisis"? It turns out that investors are not interested in the next political chaos that Trump provoked or they are responding to this news with purchases of the dollar, which is illogical.
Also, in the last two days, the speech of the future US Treasury Secretary Janet Yellen has been actively discussed in the media and the trading community. Her speech in the Senate was quite voluminous and several theses can not be ignored. For example, the future Minister of Finance completely disavows manipulating the exchange rate and even commenting on it. During the four years of Donald Trump's presidency, talking about the dollar's exchange rate has become something of a "tea party tradition". Trump talked about the dollar constantly, demanded that the Fed cut rates, openly pressed Jerome Powell, openly accused the central banks of the EU and China of currency manipulation, openly called on the Fed to "do something about it" and openly accused the Fed of "playing on the side of China". Under Janet Yellen, the exchange rate will be determined by the market, and will not be subject to discussion. Yellen did not comment on whether she needed a high or low rate. Although given the size of the US national debt and trade wars, the country needs a "cheap" national currency, not an expensive one. The question is, will the Treasury and the Fed pursue this "cheapness" or will the rate be market-driven? The second option, to be honest, is hard to believe, given how the Fed likes to run the printing press.
Another important topic is the new package of measures to stimulate the economy. Janet Yellen said that without this package, the US economy could fall into a recession. However, the same thing has been repeatedly said by Jerome Powell, who in the last six months has been doing nothing but trying to convince Congress to assist the economy.
Yellen also confirmed that the policy towards China will not change. And this is nothing new either. It is unlikely that the trade war with China was a personal initiative of Donald Trump. It is unlikely that no one else supported her. Thus, the United States still sees China as its main opponent and notes that Beijing is unfair in trade with the United States. Therefore, the trade war will continue, there is no doubt about it.
So what conclusions can we draw? The US policy towards China will not change. About the exchange rate – they say that it will change, but in fact, it is unlikely. With the arrival of Joe Biden, only one thing should change: the president will no longer be the main participant in the TV show, but the head of the country. Naturally, Joe Biden will carry out reforms. In particular, there is already talk of tax reform, after which taxes for the rich will be increased, since the national debt is huge, and the budget deficit is astronomical.
What does all this mean for the dollar? The US dollar fell 16 cents under Donald Trump. This is unusual, because, under Republican presidents, the dollar usually rises. However, these are all conventions. If you look at the long-term chart, it becomes clear that the euro/dollar pair has spent the last five years between the levels of $ 1.05 and $ 1.25. It's just that Donald Trump came in when the exchange rate was about $ 1.07 and left at the rate of $ 1.21. Therefore, we would not associate the Trump presidency and its decisions with the depreciation of the dollar. Moreover, the factor of the pandemic, which affected everything in this world, has also not been canceled. What will happen under Biden is extremely difficult to say. The Fed and the US Treasury may eventually conduct currency interventions. It's just that it won't be trumpeted at all corners. Thus, we can still connect the macroeconomic factor with what is happening in the foreign exchange market and nothing more. We can't know what operations the Treasury and the Fed are conducting if nothing is announced about them. Unfortunately, the macroeconomic factor is now practically not working. We have repeatedly drawn attention to the fact that the US economy is now in a better position than the EU economy. However, this does not affect the euro/dollar exchange rate in any way.
The volatility of the euro/dollar currency pair as of January 21 is 69 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2044 and 1.2182. The upward reversal of the Heiken Ashi indicator may signal a new round of upward correction.
Nearest support levels:
S1 – 1.2085
S2 – 1.1963
S3 – 1.1841
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2329
R3 – 1.2451
Trading recommendations:
The EUR/USD pair continues its downward movement. Thus, today it is recommended to stay in short positions with targets of 1.2044 and 1.1963 until the Heiken Ashi indicator turns up. It is recommended to consider buy orders if the pair is fixed back above the moving average, with a target of 1.2207.
