4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -30.1542
The EUR/USD currency pair on Thursday, January 28, continued rather indistinct movements. After the markets clearly understood the position of Jerome Powell and the Fed, nothing has changed for the US currency. Throughout Wednesday, the US dollar quotes grew and declined during the whole of Thursday. Thus, traders seemed to give yesterday a debt to the euro currency, which had fallen in price for nothing earlier in the day. In general, the technical picture in recent days is frankly ugly. If from the very beginning of the year, the euro/dollar pair was trading quite logically, then in the last week, market participants seemed to stop understanding what to do next. After the next round of weakening of the US currency ended on January 4, the pair adjusted in principle enough. Enough, if we consider only the last section of the fall of the dollar. Thus, formally, the upward trend can now resume. However, the bulls failed to do this with two attempts: the pair was twice fixed above the moving average line and twice went back under it. However, the pair also failed to overcome the level of 1.2060 in two attempts. Thus, at the moment, a flat has started or traders do not understand which way to trade now.
Now as far as the fundamental background. This week, there were some very important events for the dollar, and therefore for any pair associated with the dollar. However, given the relatively low volatility, as well as the absence of major price changes, it can be assumed that traders were not impressed by the events of this week. For example, yesterday in the United States, GDP for the fourth quarter was published, which showed a smaller recovery than traders expected. A day earlier, the Fed did not change the parameters of monetary policy at all, and Jerome Powell's speech was almost 100% the same as at the previous FOMC meetings at the end of 2020. Thus, there were simply no positive moments for the US dollar this week. Nevertheless, the US dollar is rising more this week than falling.
Let's return to the global macroeconomic factors. In short, we believe that the US dollar has an excellent chance of a new round of decline in the long term. For a long time, it was extremely difficult to understand what market participants were reacting to, constantly selling off the US dollar. Now there is a hypothesis about this, which is very similar to the truth. We have described its essence in the last fundamental articles. We are talking about a combination of two factors "the fall of the US economy – pumping the US economy with money". We have already given approximate calculations that show that in total over the past three quarters, the US economy has lost much more than the European one. We also said that the US government has already poured at least $ 4 trillion into supporting the economy, and besides, the Fed is pouring in another $ 120 billion every month, buying back government securities and mortgages. Thus, all this time there is a powerful process of pumping the economy with liquidity. And if the Fed influences the economy through large companies, financial corporations, and banks, simply buying securities from them, then Congress influences the economy by issuing loans and grants to businesses and "helicopter money" for the population. That is, in any case, the money supply becomes larger. Which leads (presumably) to a strong fall in the US currency. Based on this, we assume that this process of depreciation will continue, as the US Congress is going to pour in almost $ 2 trillion more, and the Fed said yesterday that it is not going to end its quantitative stimulus program. Consequently, nothing has changed fundamentally for the dollar.
You should also pay close attention to the rhetoric of Jerome Powell. Although the US economy is recovering at a generally good pace, Powell did not praise this very pace, preferring to focus on the problems, the "coronavirus", weak levels of employment, unemployment, and inflation. And this, in principle, is true. Things are exactly as Powell said:
1) The "coronavirus" has not disappeared. It still causes "lockdowns" and quarantines in the world. It still kills people. And the entire population of the planet is unlikely to be vaccinated in 2021. It should also be noted that recently, scientists have discovered several new strains of COVID-2019, with which it is still unclear whether existing vaccines will be able to fight.
2) Inflation. Inflation in the United States is strong. Compared to the European one. However, it should be understood that US inflation is "relatively strong" only because the dollar has fallen by 15-16 cents in the last 10 months. For example, the European Union complains about the high euro rate and weak inflation because of this.
3) Unemployment. Most of the unemployed in the United States managed to return to their jobs after the first wave of the crisis and the pandemic. However, about 9 million people remain unemployed.
4) The level of employment. The inverse of the unemployment rate.
"The economy is far from the target levels and it will take considerable time to make further progress. The outlook for the US economy remains extremely uncertain. The increase in coronavirus cases, hospitalizations, and deaths recorded in recent months is creating huge problems for millions of Americans and negatively affecting economic activity and job creation. We have not yet used all the tools to help the economy recover and inflation reach the level of 2%. If the 2% inflation rate is exceeded, the US authorities will not immediately react. Inflation, under the new adaptive approach, will be allowed to stay above 2% to compensate for periods of low inflation. There is nothing more important for the economy right now than vaccinating people. If we talk about the vulnerability of the economy, I would say about bars and restaurants. That's 400,000 jobs that we lost just last month, and it's all because of the epidemic." This is the brief text of Powell's speech at the press conference after the Fed meeting.
Thus, the "technique" seems to allow for a possible continuation of the fall of the euro/dollar pair (if it is possible to overcome the level of 1.2060), but the "foundation", according to the new theory and recent events, expresses confidence that the US dollar will resume its decline in the long term.
The volatility of the euro/dollar currency pair as of January 29 is 70 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2066 and 1.2206. A reversal of the Heiken Ashi indicator downwards may signal a new round of downward 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 trade downwards with a target of 1.2066 if the price bounces off the moving average line. It is recommended to consider buy orders if the pair is fixed back above the moving average with a target of 1.2206.
The material has been provided by InstaForex Company - www.instaforex.com