4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 29.1757
The EUR/USD currency pair was trading on Tuesday and Wednesday as if it were a weekend. However, this is not surprising since three working days out of 5 passes with minimal volatility, and the concept of a trend has long been absent for the euro/dollar pair. By and large, in recent weeks, the pair has been squeezed in a 100-point side channel. Thus, all traders' hopes were reduced to the Fed meeting. We will not consider the meeting results and the market's reaction to them in this article. First, it should take a little time for the markets to fully understand and digest all the information received and draw conclusions. Second, whatever Jerome Powell says after the Fed meeting, it will not change the overall picture of the situation. Recall that after the last Fed meeting, the pair's quotes fell by 250 points, although nothing was said beyond the natural. There has been no talk about any specific actions of the Fed for a long time.
Moreover, most likely, the Federal Reserve will not decide on any changes in monetary policy until the end of the year. Consequently, the markets will be able to react only to the statements of Jerome Powell. However, Powell has made several speeches over the past six weeks and made it clear that no changes in the QE program should be expected in the coming months. Moreover, there is now an increase in the number of cases of the "coronavirus" in the United States. Thus, a new "wave" of the pandemic may begin overseas. And if so, then the American economy may again start to slow down its recovery, and it will be possible to forget about the curtailment of the QE program for a long time. Thus, whatever the final reaction to the Fed meeting, other global factors continue to have a more significant impact on the currency pair.
We want to note that whatever movement is observed after the Europeans and Americans work out the results of the Fed meeting, it will be only a "single moment." After the previous Fed meeting, there was also a strong movement, which was subsequently replaced by weak trading for weeks. The pair has not been able to overcome the level of 1.1760 during this time. We remind you that we expect the upward trend to resume from the current levels. Thus, whatever the results of the Fed meeting, this will not change our expectations. It should also be recalled that fundamental global factors have remained unchanged in recent months. Until the Fed announces a specific deadline for completing the QE program and its completion begins, hundreds of printed billions of dollars will continue to flow into the American economy. And this pattern will continue at least until the end of 2021 because more than 7 million Americans have yet to find a job they lost during the pandemic. At the same time, we are talking primarily about low-paid jobs, respectively, and about the poorest segments of the population. The Fed and the US government want to avoid a situation in which the rich will continue to get richer, and the poor will get poorer, and due to this, the balance will be maintained. The Democrats have always been more in favor of the interests of ordinary workers, so they will do everything to restore the labor market fully. It should also be remembered that the current growth of the American economy is provided exclusively by monetary injections. It is artificial. If you remove the QE program, the economy will immediately begin to slow down. And high inflation will begin to devour it from the inside. The US government will now need to deal with inflation, which is provoked by the Fed, and inflation, which will be provoked by deferred demand. During the pandemic, Americans have accumulated about $ 1.5 billion, which will sooner or later begin to be spent, which will also spur inflation. Thus, the Fed stands. On the one hand, it is necessary to restrain inflation, and part of the monetary committee should advocate curtailing the QE program. On the other hand, we need to continue stimulating the labor market, and it is difficult to do this without cash injections.
From all of the above, it follows that the US currency can resume a long-term downward trend at almost any moment. In the last few weeks, on all the higher timeframes, it is visible how the bears are losing positions and do not find any more reasons for selling the euro for dollars. Let us not forget the COT reports, which signal just about the sales of the euro in the last five weeks. Nevertheless, so far, the pair has not been able to fall even to its previous local minimum. From our point of view, this indicates a certain detente of the market. The US currency is being held back from a new fall only because major players actively sell off the European currency. But when this process is over, two factors will favor the dollar's fall. First, hundreds of billions of dollars continue to flow into the American economy. Second, the lack of sales of the European currency for dollars. And then, the US currency can start a new protracted round of decline. It should also be remembered that the debts of the American government have grown to $ 30 trillion, which is already more than 100% of GDP. And this is very unprofitable for the "expensive dollar." Already this fall, a "technical default" may occur. It is unlikely that Congress will allow it. But if not, it will mean that the debt ceiling will be raised 75 times since the adoption of the relevant law at the beginning of the last century. And if so, then the American government will be able to take on new debts, the servicing of which will be beneficial to it only with the cheapest possible American currency.
The volatility of the euro/dollar currency pair as of July 29 is 66 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1740 and 1.1872. A reversal of the Heiken Ashi indicator to the top will signal a new round of upward 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 overcome the moving average and will try to start a new upward trend. Thus, new long positions with targets of 1.1841 and 1.1872 are possible today after the Heiken Ashi indicator turns up. The sale of the pair will be possible not earlier than the price-fixing back below the moving average line with targets of 1.1740 and 1.1719.
The material has been provided by InstaForex Company - www.instaforex.com