4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -163.6053
The EUR/USD currency pair resumed its downward movement on Monday, February 1, according to the trend of the last few days. Unfortunately, the price still fails to overcome the level of 1.2050, from which several rebounds have already been made. But this is not the main thing. The main thing is that the euro/dollar pair is still adjusted, unlike, for example, the pound/dollar pair. Complete uncorrelation between the two main pairs happens infrequently and when it happens, it means that something is brewing. Thus, the quotes of the euro/dollar pair are still below the moving average line and are slowly moving down. And there is nothing more to add to this. If you pay attention to the events of the last weeks and even all of January 2021, it is even difficult to draw a conclusion about what events in general led to the strengthening of the US dollar in pair with the euro, and answer the question, why does the pound sterling continue to grow? Events were not so few: the meetings of the Fed and the ECB, several speeches by Christine Lagarde, Jerome Powell, Janet Yellen, the inauguration of Joe Biden. However, due to which of these events is the US dollar now becoming more expensive? From our point of view, now there is a banal technical rollback. We have already said repeatedly that the euro/dollar pair has risen significantly in the last couple of months and in the last 10 months. From time to time, any instrument needs corrections. Therefore, at this time, we have witnessed such a "purely technical" correction. If this is the case, then the upward trend is almost guaranteed to resume, because the current pullback will be used by market participants to open new long positions at an attractive rate.
As we said in previous articles, from our point of view, only two global fundamental factors generally affect the movement of the euro/dollar pair. This is the state of the EU and US economies, as well as the stimulus packages allocated to both economies. Thus, now the allocation of a new package of stimulus measures is of great importance for the US currency. It will be allocated almost guaranteed, because the US economy really needs it. The only question is what size it will be. Joe Biden and the Democrats are proposing to inject almost $ 2 trillion more into the economy. However, Republican senators refuse such an impressive help. They tried to reduce the amount of aid even when Donald Trump was still president and offered his own version of cash injections. Thus, since about August of last year, the dispute between Democrats and Republicans regarding the amount of aid to the economy has not stopped in the United States. The budget for 2021 includes a certain amount of money for the payment of benefits to Americans ($ 600), however, the Democrats are going to provide assistance not only to private households and the unemployed, but also to all Americans, as well as small and medium-sized businesses. Republicans believe that it is quite possible to do with 600 billion dollars. Accordingly, the bidding begins again. Recall that shortly before the presidential election, Democrats and Republicans almost came to a common opinion on the size of the stimulus package, but negotiations stalled precisely because of the elections that began. Now, it turns out, everything starts all over again. It will take at least a month and a half for the parties to again approach a certain common opinion, for example, in the region of $ 1.3 trillion. All the while, the US economy, which collapsed in the second quarter of last year, will stall. The fact is that as long as a new pair of trillions of dollars does not pour into the markets, the US dollar can feel more or less calm. Of course, the pound/dollar pair is an exception, however, we consider the euro/dollar.
As we have said, the US economy contracted strongly in the second quarter of last year. And even taking into account the fact that it showed growth in the third and fourth quarters, it has not yet fully recovered from the losses during the first "wave" of the pandemic. The European economy shrank three times less and even taking into account the "negative" fourth quarter recovered most of the losses. However, it is thanks to this factor that the US currency has been falling in the last 10 months. Now we need new official data. And they say that the state economy continues to recover, and the European one has started to shrink again. Plus, the overbought euro currency. Therefore, the dollar now has a small advantage. But if, for example, tomorrow the US Congress approves the allocation of even 1.5 trillion dollars, then there is no doubt that the US currency will again rush down.
Also, recently, the issue of vaccines production and distribution has become very acute in the European Union. The European Union, which had previously placed orders for the supply of vaccines from AstraZeneca, was not very happy to learn that the company could not cope with such orders in terms of volume and could deliver 60% less doses on time than previously agreed. Brussels offered the company to abandon part of the supplies to the UK in order to fulfill the contract to the full. However, the company also has a contract with London, so now the "war for vaccines" begins. As we said in previous articles, there are five or six more or less studied and tested vaccines worldwide. Thus, only 5 or 6 companies will distribute the majority of orders among themselves and, of course, are unlikely to be able to meet all the demand in a couple of months. Therefore, the developed and rich countries will receive the vaccine first,and then all the others. This is absolutely logical, but the world is already beginning to get a little excited about this, since rich countries at this stage do not intend to share the vaccine with anyone at all until most of their population is vaccinated. For the US dollar, this is also a factor that could help in the coming month. Recall that last spring, when the first "wave" of the pandemic began, the US currency was strongly strengthened for some time, as most market participants used it as a reserve currency. So now, something similar could also happen. Of course, you can't compare the wave of panic when an unexplored virus spreads in the world, which has already received the status of a pandemic, and the battle for already discovered vaccines against the virus. Sooner or later, everyone will get the vaccine. At least, I want to believe it. So for now, the dollar just has a respite, which can end at any moment.
The volatility of the euro/dollar currency pair as of February 2 is 76 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1998 and 1.2150. A reversal of the Heiken Ashi indicator to the top can signal a new round of upward movement.
Nearest support levels:
S1 – 1.2024
S2 – 1.1963
S3 – 1.1902
Nearest resistance levels:
R1 – 1.2085
R2 – 1.2146
R3 – 1.2207
Trading recommendations:
The EUR/USD pair has consolidated back below the moving average. Thus, today it is recommended to trade downwards with the targets of the levels of 1.2024 and 1.1998 before the reversal of the Heiken Ashi indicator to the top. It is recommended to consider buy orders if the pair is fixed back above the moving average with targets of 1.2146 and 1.2207.
The material has been provided by InstaForex Company - www.instaforex.com