The current fundamental and macroeconomic background adequately supported the EUR/USD currency pair's sluggish downward movement on Tuesday and Wednesday. We discussed the reality that there won't be many significant events this week during the weekend. Even events that appear to be significant at first glance are not. For instance, Tuesday's publication of quite significant reports on business activity in the production and service sectors in the European Union and the United States did not reveal anything exceptional. In the EU, economic activity did indeed rise in the services sector, but it was also higher than 50. Business activity decreased in the manufacturing sector, but it remained below 50. The American reports held no interest for traders, and it was impossible to predict how they would respond logically. Then what else? The final estimate for January will be included in the inflation report that will be announced today, so traders are already aware of the indicator's value. The expected drop in inflation to 8.5-8.6% is quite positive. A report on the US GDP for the fourth quarter will be announced today, but as this is the second estimate, market participants are already aware of the figure, which is most likely to be between 2.8 and 2.9%. There will be absolutely nothing exciting happening on Friday in the United States or the European Union.
Perhaps the Fed's representatives will provide some information by speaking in interviews and speeches and taking advantage of the lack of silence, but there can be no single rhetoric under the current conditions. Some believe that increasing the rate at the fastest possible pace is still necessary, while others disagree. Regarding the technical picture, the pair has made just one unsuccessful attempt since February 3 to establish a foothold above the moving average line. The US inflation report was released on that day, so an increase in activity was anticipated. The pair is steadily declining for the rest of the period, and we favor this choice because we think the pair is still not adjusted enough to consider major growth.
In 2023, the Fed rate might actively increase.
The 17 members of the Fed's monetary committee do not agree on rates, as was previously said. The rate of monetary policy tightening has already been slowed by the Fed to 0.25% per session, and there have recently been reports that the rate won't increase in March. But, the most recent inflation data has altered market expectations, and as a result, we are now talking about a further increase of 0.25%, with a possible total of 2 or 3 in 2023. James Bullard, a non-voting committee member this year, simultaneously urges his fellow members to pick up the pace of tightening once more and raise the rate by 0.5% in March. He thinks that aggressive tightening will make it easier to combat high inflation. "I believe that we should reach the final level of the key rate as soon as possible, and only then should we discuss what to do next," Bullard believes.
He has the support of Loretta Meister, president of the Federal Reserve Bank of Cleveland. Bullard also reminded us that the Fed battled strong inflation for 15 years in the 1970s, during the previous century. "What if inflation eventually stops declining and begins to rise once more? Let's be persistent and far-sighted now to take control of consumer prices this year," the head of the St. Louis Federal Reserve believes. Unfortunately for the dollar, very few committee members agree with such a "hawkish" stance; instead, the majority of them think that consistency and smoothness are essential. As a result, there isn't any mention of increasing speech pace at the moment, but it may be this year. And the regulator might act more forcefully if Bullard's worries come true. In this instance, though, inflation may begin to increase once more in both the EU and Britain, forcing both countries' central banks to take action as well.
As of February 23, the euro/dollar currency pair's average volatility over the previous five trading days was 58 points, which is considered to be "normal." Thus, on Thursday, we anticipate the pair to move between 1.0570 and 1.0686 levels. A new round of correction will be signaled by the Heiken Ashi indicator's upward movement.
Nearest levels of support
S1 – 1.0620
S2 – 1.0498
S3 – 1.0376
Nearest levels of resistance
R1 – 1.0742
R2 – 1.0864
R3 – 1.0986
Trade Advice:
The EUR/USD pair maintains a downward trend. Unless the Heiken Ashi indication turns up, you can continue to hold short positions with targets of 1.0620 and 1.0570. After the price is fixed above the moving average line, long positions can be initiated with targets of 1.0742 and 1.0864.
Explanations for the illustrations:
Determine the present trend with the use of linear regression channels. The trend is now strong if they are both moving in the same direction.
Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction.
Murray levels serve as the starting point for adjustments and movements.
Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.
A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.
