The European currency paired with the US dollar is mostly in one place in the last two weeks. However, this does not prevent it from also updating its local maximum. The last time such a high was updated was on May 25, when the price stopped near 1.2266. Recall that the three-year high is at 1.2350. Although the upward movement is very weak, it remains very confident. At this time, there is no classic confrontation of bulls and bears in the market. Buyers are just gradually pulling the pair up, and sellers are watching on the sidelines. According to COT reports, buyers continue to increase their positions, which leads to an overall increase in the net position. Thus, the mood in the market is now "bullish," and the United States continues to pump its economy with money (and is going to continue to do so), and a new global upward trend has begun. From our point of view, the three most important factors that affect the pair's movement at this time remain on the side of the European currency. At the same time, all the most important macroeconomic indicators, such as inflation or GDP, the rhetoric and actions of central banks, the expectations and fears of traders do not matter much now.
Moreover, many macroeconomic reports can be interpreted in different ways. For example, in the United States, inflation rose to 4.2% y/y. That's a lot. However, the report for April has a very low base (weak inflation in April 2020). The price increase is associated with rising energy prices and pouring trillions of dollars into the economy. What else could we expect? Thus, the acceleration of inflation can be considered a positive factor (the Fed will move faster to curtail the QE program and raise the rate) and as a negative factor (depreciation of money). The same applies to the rhetoric of the representatives of the ECB and the Fed. By and large, it now has no special impact on the movement of the euro/dollar pair. Christine Lagarde and Jerome Powell speak very often. However, one speech out of ten gives real new information to traders. The essence of the latest statement by Christine Lagarde is that we should not expect any steps from the European regulator in the near future to tighten monetary policy and curtail incentives. The essence of Jerome Powell's latest statement is a cautious hint that if the US economy continues to grow at a high rate, then perhaps the QE program will begin to wind down. The representatives of the Federal Reserve did not name the terms in clear text, nor did they name clear conditions. It is impossible to understand what kind of growth the Fed wants to achieve so that this is enough to complete the QE program. In the first quarter of 2020, the US economy accelerated by 6.4%, and in the second – it can add 9% (judging by forecasts). That's a lot. For example, the Bank of England already openly says that it will be ready to raise the rate next year, although there was no economic growth in the first quarter (-1.5% y/y). Thus, the comments of the Fed representatives, although they are "minimally hawkish," do not clarify in any way what and when to expect from the Fed in terms of monetary policy.
Accordingly, the fundamental background has not changed at all recently, and along with it, the euro/dollar pair itself stands still. The good news is that not everything depends on the fundamental background. Market participants, especially large players, can make trades without relying on any fundamental background. However, we can not predict what actions will be performed by a particular large bank or corporation. Thus, we can only follow the trend that we are tracking with the help of technical analysis and pay attention to technical analysis that visualizes what is happening.
You should also pay attention to macroeconomic statistics. However, keep in mind that most of the reports are ignored. A striking example of this is the report on orders for long-term goods in the United States, which no one has paid attention to for more than a year, although it was previously considered very significant. Next week, the European Union will publish a report on inflation for May, the unemployment rate, the index of business activity in the manufacturing sector, the index of business activity in the service sector, and retail sales. In addition, there will be two speeches by the head of the ECB, Christine Lagarde. What should you pay attention to? From our point of view, only on the inflation report. The consumer price index may rise to 2% y/y in May. It is difficult to say how the markets will react to this report. However, there should be a reaction. The speeches of Christine Lagarde will depend solely on whether she touches on the topic of monetary policy and how new the information will be.
Given that Christine Lagarde is not a Reuters news agency, it is unlikely that she should be expected to change her rhetoric every week. Reports on business activity and retail sales are unlikely to interest traders unless the values of these reports are very different from the forecasts. The unemployment rate has not bothered market participants for a long time.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart is unambiguous. The upward trend continues. However, the upward movement itself is very weak and uncertain. On Friday, the pair tried to start a round of downward movement but almost immediately bounced back up. In general, we see that the movement is not too strong now, with frequent and rather deep corrections. It is a "swing" with a slight upward slope. Therefore, it is recommended to trade for purchase on a 4-hour timeframe, but only if you clearly understand the specifics of the current movement. Recall that the pair is already very close to its local and 3-year highs. Most likely, they will be overcome.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
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