4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -68.7557
On Monday, July 19, the EUR/USD currency pair started trading down again. Recall that on Friday, the pair's quotes stood in one place all day, although several quite interesting macroeconomic reports were published on this day. For example, European inflation and a report on retail trade in the United States were released. And if the European inflation did not surprise traders, then the retail trade report should have pleased dollar bulls. However, the markets took a day off on this day, and the pair set an anti-record for the volatility of recent months. In general, the technical picture is now such that the downward trend continues. So far, the bulls cannot find the necessary reasons to repurchase the pair. At the same time, this moment can be explained by the difference in views between the ECB and the Fed or some macroeconomic reports. Or you can use a global technical factor. It is no secret that the Fed has recently been giving hints that it may start discussing the earlier curtailment of the quantitative stimulus program in the near future. In reality, Jerome Powell has already stated several times that the monetary committee will not make such decisions on tightening monetary policy in the coming months. His last speech was held in the US Congress last week, and his words can be trusted. There is no reason to assume that the Fed will curtail the QE program by the end of 2021. However, a couple of careless comments and inflation, which is growing by leaps and bounds, still assured the markets that the Fed could start curtailing the QE program. But there were no hints in the European Union that the PEPP program could end earlier than March 2022.
Moreover, it is much more likely that it will be extended after this period. The economic recovery in the European Union is much slower, and the inflation rate, even taking into account the acceleration in recent months, remains relatively low. Much lower than in the US and even lower than in the UK. Therefore, this factor may continue to push the euro/dollar pair down slowly. We also remind you that the global technical factor suggests a further fall of the pair to the level of 1.1700. We believe that a new round of corrective movement continues to form on the 24-hour timeframe within the framework of a global upward trend, which may end just near the minimum of the previous round of correction (that is, around the level of 1.1700). A drop of another 60-80 points can be expected. As for the pair's prospects, we do not believe that the dollar will continue its strengthening. Of course, the latest COT reports create an excellent springboard for the continued strengthening of the US currency. But we believe that as long as the Fed continues its QE program, the money supply will increase, which will negatively affect the dollar exchange rate.
In the new week, all the attention of traders will be focused on only one event. This event is the ECB meeting, which will be held on Thursday. By and large, no one expects any changes from the European regulator. There are no grounds for this. There were no "ambiguous" statements from ECB representatives. Thus, most likely, this will be another passing meeting, and the most interesting for the markets will be a press conference with Christine Lagarde, at which something new may sound. However, we don't even expect anything from the press conference. Christine Lagarde has been speaking regularly recently, so the markets have formed a clear idea of the opinion of the head of the ECB at the moment. It's pretty simple: the ECB will continue to stimulate the EU economy until it achieves price stability, reaches a stable 2% inflation, and the economy does not approach its pre-crisis volumes. What else can traders pay attention to this week? Until Friday, neither the EU nor the US will have any important macroeconomic reports, except for the report on applications for unemployment benefits on Thursday. On Friday, the European Union will release business activity indices in production and services for July. However, these indices have not had any effect on the euro exchange rate for a long time. The problem is that after the economy began to recover, it soared to its maximum values for many years. Therefore, changes by several points in any direction have no meaning. Currently, the index value for the manufacturing sector is 63.4, and for the services sector – 58.3. Recall that any value above 50 is considered positive. The same applies to business activity indices in the United States. They are also located very high, so almost any change in them is unlikely to cause some reaction from traders. It turns out that this week, we will witness only a passing meeting of the ECB and no single important macroeconomic report.
Theoretically, the EUR/USD currency pair may continue its decline this week. But if it takes place, it can be as sluggish as possible. It is the same as we have seen in the last month and a half (except for a couple of days immediately after the Fed meeting). Both linear regression channels are now directed downwards, as the global correction for the pair has been slightly delayed. Nevertheless, we still count on its completion and the resumption of the upward movement, within which the quotes will return to the 22nd level and above.
The volatility of the euro/dollar currency pair as of July 20 is 63 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1732 and 1.1858. A reversal of the Heiken Ashi indicator back down will signal the resumption of the downward movement.
Nearest support levels:
S1 – 1.1780
S2 – 1.1719
S3 – 1.1658
Nearest resistance levels:
R1 – 1.1841
R2 – 1.1902
R3 – 1.1963
Trading recommendations:
The EUR/USD pair has again adjusted to the moving average and may bounce off it. Thus, short positions with targets of 1.1732 and 1.1719 are possible today if a price rebounds from the moving average. Purchases of the pair will be possible not earlier than the price-fixing above the moving average line with targets of 1.1858 and 1.1902.
The material has been provided by InstaForex Company - www.instaforex.com