4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - upward.
CCI: 73.2618
The EUR/USD currency pair was trading rather indistinctly for most of the penultimate trading day of the week. However, it is not surprising. There were almost no important macroeconomic statistics this week, all the fundamental events with a loud sign turned out to be uninteresting, and traders thought on what basis they again began to sell the US dollar? From a technical point of view, the price has worked out the Murray level of "3/8"-1.2146. We believe that in the future, the fall of the US currency will continue, respectively, the euro/dollar pair will continue to grow. However, now is the time to adjust, as the growth has been going on for several days in a row, since last week. Thus, today we expect at least a small correction. Small – because in general, the volatility has decreased this week, so the pair now passes an average of 50-60 points per day. We have already said many times that the main factor in the decline of the US currency in the last 10 months and a possible factor in the decline of the dollar in the future is the huge amounts that pour into the US economy from nowhere. However, in addition to the economic stimulus programs that were approved by the US Congress and the president (the total amount of these programs since the beginning of the pandemic is already equal to $ 4 trillion), there is also a quantitative easing program from the Fed. Recall that every month the Fed buys securities worth at least $ 120 billion. That is, there is no upper limit or the total amount for which the purchase will take place, or any validity period of this program. The European Union has a similar program. The PEPP, a program of emergency assistance to the economy that currently amounts to 1.85 trillion euros. But it has a clear timeline for its completion, as well as a clear volume above which the ECB cannot jump. In the United States, the volume is unlimited, and the stimulus will continue until the economy returns to pre-crisis levels. So, in practice, we have 4 trillion that has already been approved by the government in 2020, 2 trillion that is about to be approved by the new government of Joe Biden, as well as unlimited amounts (probably already several trillion) that the Fed is pouring into the economy. So it turns out that over the past year, plus the next few months, up to $ 10 trillion can be poured into the US economy, which is taken out of nowhere or simply printed. Naturally, the supply of the dollar in the foreign exchange market increases, but the demand does not. Naturally, the US dollar is getting cheaper and, most likely, will continue to get cheaper. The European Union also conducts incentive programs, but not in such volumes. Therefore, the European currency feels just fine compared to the dollar. And the funny thing is that this is not in the hands of the European Union, but in the hands of the States, which have long wanted to achieve a "cheap" dollar. Such is the paradox.
Meanwhile, ECB President Christine Lagarde said that it is still very early for the ECB to wind down the quantitative stimulus program or reduce its volume. According to her, interest rates will remain ultra-low for a long time. Lagarde also dismissed the proposal to forgive debts to European companies and believes that an expansionary monetary policy is what the ECB needs to overcome the economic crisis as quickly as possible. Lagarde insists that EU countries invest as much money as possible in their economies, which will increase spending, create jobs and contribute to the recovery. The ECB itself, like the Fed, will continue to print euros to stimulate the economy fiscally. It should be noted that now the ECB, by and large, does not even have a choice. That is, it can not stop printing euros and pour them into its economy, since in this case, the euro may even soar into the sky against the dollar. This is not profitable for Europe, so it also continues to pump its economy with money.
At the same time, the European Commission has worsened its forecasts for the economy for 2021. The EU economy is now expected to grow by 3.8% this year, down from 4.2%. A 3.8% recovery is expected in 2022. Inflation in the euro area should be 1.4% y/y this year, and 1.3% y/y in 2022. The accompanying statement said that short-term forecasts were revised downwards as the pandemic intensified its impact on Europe this winter. Many countries have been forced to impose strict restrictive measures.
However, all of the above again did not affect the euro currency. Reduced forecasts for economic recovery – so what? Christine Lagarde continues to throw "dovish" statements - it doesn't matter! The markets continue to look only at the fact that the supply of the US dollar is growing and, most likely, is growing at a much higher rate than the supply of the euro currency in the market. Those are all the factors that affect the euro/dollar pair now. One factor. Macroeconomic statistics continue to be ignored. Only the factor of the US economic recovery can have a positive impact on the dollar in the next six months or a year. The fact is that the EU economy shrank this winter, and the US economy continues to recover. Sooner or later, the US economy will catch up and overtake the European one in terms of recovery levels after the disastrous second quarter of 2020. Then it will be more difficult for the European currency to become more expensive. But that's still a long way off.
The volatility of the euro/dollar currency pair as of February 12 is 57 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2072 and 1.2186. A reversal of the Heiken Ashi indicator downwards may signal a round of downward correction.
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 continues to be in an upward movement. Thus, today it is recommended to keep long positions open with targets of 1.2186 and 1.2207 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders if the pair is fixed below the moving average, with a target of 1.2024.
The material has been provided by InstaForex Company - www.instaforex.com