4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -122.0606
The EUR/USD currency pair on Wednesday, January 27, began a new round of downward movement and again consolidated below the moving average line. Thus, in recent days, the euro/dollar pair is not happy with its movements. Nevertheless, it is necessary to state the fact that after a small correction on the 4-hour timeframe, it seems that the downward movement has resumed. If this is the case, then the pair's quotes may continue to decline for some time. We have repeatedly focused the attention of traders on the problem of a weak dollar. In the last 10 months, the US currency has mostly fallen. In general, it has lost about 17 cents during this time. However, for example, in the period from January 2017 to January 2018, the euro currency also grew and then increased by 20 cents. Between June 2010 and April 2011, the euro rose by 30 cents. There is nothing to panic about right now. Nothing extraordinary happened. Market participants are simply not at ease because the pair continues to persistently ignore macroeconomic statistics or various fundamental factors. The problem is that few people understand why the dollar has been falling in the last 10 months. In our recent articles, we have assumed that it is all due to the weakness of the American economy after the outbreak of the pandemic in March last year. It was the US economy that fell by 31.4% in the second quarter of 2020, and it was into this economy that about $ 4 trillion was subsequently poured out of nowhere. Naturally, the US dollar came under pressure due to the strongest drop in GDP, and then the demand for the US dollar fell since the markets were flooded with $ 4 trillion. Thus, if we assume that the markets have finally had enough of the dollar's sell-off, then a new long-term upward trend in the dollar is now beginning. Of course, the US Congress and the Fed can save the US currency from falling by injecting a couple of trillion more "helicopter money" into their economy. Especially since Congress and Joe Biden will be discussing a $ 1.9 trillion "bailout plan" anyway. Thus, for the States in the last 10 months, everything was fine in terms of the dollar exchange rate. Recall that Donald Trump has repeatedly stated that the country needs a "cheap" dollar and tried to put pressure on the US currency by all means available to him. Most often, these methods were verbal. Donald Trump pressed the Fed and Jerome Powell personally, called him "on the carpet", criticized him almost every day, accused him of aiding China, in general, behaved like Donald Trump, doing everything possible to make the dollar fall. The dollar did not fall. However, it began to fall when the pandemic began, which hit the United States most of all in the world, and the American economy collapsed by a record 31.4%. Thus, it is hardly possible to conclude that the States are in favor of everything that has happened in the last year. The dollar has finally fallen, which facilitates export operations, as well as servicing the huge national debt, and increases the competitiveness of American goods in international markets. But the economy has shrunk by more than 30% in parallel.
The situation in the European Union is quite different. Its economy has also declined, but lost a total of 11.4%. And almost all the losses at the moment have already been restored. Of course, in the fourth quarter, the EU economy is likely to lose a couple of percent of GDP again, but these are small things. But the current exchange rate is slowing down the recovery. The current exchange rate of the euro is such that inflation has been in the negative area for more than six months. And inflation is very important for economic growth and recovery. Christine Lagarde and other top EU officials have repeatedly stated that the current euro exchange rate is very high and not profitable for the economy. However, what can the EU do about it? Launch currency interventions, but the United States can respond in kind. Plus, it should be understood that manipulation of the exchange rate is not welcome in the world. For example, Janet Yellen, the US Treasury Secretary, said that the country will abandon any attempts to influence the current dollar rate. It is not known whether this is the case in reality, however, the desire itself is very correct. Imagine what would happen if every country in the world tried to use the printing press to solve the problem of the high exchange rate. This is often a problem only for developed countries. Developing countries mostly do not suffer from the high exchange rate of the national currency. They suffer from the rapid pace of its depreciation. So the "currency of the game" is generally not welcomed by market participants and other countries. The states have all the necessary cards in their hands right now. Given how much their economy has shrunk, they have the right to declare the need for recovery and throw money out of the helicopter. But in the EU, they hardly have the right to do anything like this.
Based on all of the above, we believe that the US dollar may continue to fall in price in the long term. The United States now has stronger recovery indicators (unemployment, inflation, GDP), however, it should be understood that the country is recovering quickly after falling into the abyss. Thus, the macroeconomic reports are in some ways even deceptive now. They often show that the EU economy is recovering, but at the same time, they do not take into account the decline that was in the second quarter of 2020.
Thus, from a purely technical point of view, the quotes of the euro/dollar pair can now fall to the levels of 1.1700 and 1.1500. This will be quite enough to count the correction and resume the upward movement. In general, in global terms, the increase of 17 cents is not so much. That is, after a couple of months of correction, a new upward movement when looking at the weekly or monthly chart will not look strange. But, of course, a lot will depend on whether the new stimulus package is approved by the US Congress, when it is approved, and what size this package will be.
The volatility of the euro/dollar currency pair as of January 28 is 71 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2045 and 1.2187. A reversal of the Heiken Ashi indicator to the top can signal a new round of upward movement.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading recommendations:
The EUR/USD pair has consolidated back below the moving average. Thus, today it is recommended to stay in short positions with targets of 1.2045 and 1.2024 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 targets of 1.2187 and 1.2268.
The material has been provided by InstaForex Company - www.instaforex.com