4-hour timeframe
Technical data:
The upper channel of linear regression: direction - upward.
The lower channel of linear regression: direction - downward.
The moving average (20; smoothed) - down.
CCI: -71.6724
Today, January 29, the EUR/USD currency pair starts with a very weak upward correction, which still started yesterday. Traders did not understand exactly how to respond to reports on changes in the number of orders for long-term products since the main indicator significantly exceeded the forecast, and three of the four other indicators were significantly weaker than these forecasts. Therefore, first, we saw a continuation of the downward movement, after which the correction began. It should also be said at once that the volatility of the euro-dollar pair remains extremely low. The average value is 40 points per day, but three of the last five trading days have shown a volatility value of 28 points. We can't even see a normal correction, since the activity of traders is extremely low at the moment, and at the same time, they confidently maintain a bearish mood, while the pair's two-year lows remain no more than 130 points.
The main event of today is the meeting of the Fed, the announcement of its results, as well as a press conference with Jerome Powell, who will now speak after each meeting of the regulator. We have already said this weekend that this meeting is essentially a walk-through. There will be certain changes in the composition of the Fed's monetary committee, which, however, should not affect the results of the voting rate and, in general, the overall attitude of the Fed's management towards monetary policy. Thus, the probability of the rate remaining unchanged at the end of the January meeting is from 87% to 100%. Some analytical agencies have lowered the probability of a rate unchanged due to the latest macroeconomic reports in the States, which forced traders and analysts to start thinking again about whether a new round of economic slowdown is beginning in America. We still believe that no, it doesn't start. At least, it is still too early to draw such conclusions. However, some recent macroeconomic reports do show weakness and may force the Fed to go for another easing of monetary policy soon.
The biggest concern is now the indicator of industrial production in the United States. Since September 2018, the growth rate of this indicator has been steadily falling, and in the last 6 months, there has been a decrease in the rate of production growth. If production falls, this is the first sign of an economic slowdown. Along with industrial production, GDP, inflation, the producer price index, and wages of the population may decrease.
ISM and Markit indices of business activity in the US manufacturing sector also raise concerns. The first – it has long gone "underwater", that is, under the level of 50.0, which indicates a decline in the industry. For the last 5 months in a row, the ISM index has shown lower values than 50.0. The less significant Markit business activity index is still located above the "waterline", but in the last two months, it has started to decline again and its last value is 51.7, which is not far from the "red zone". However, we all see that it is the ISM index that more clearly and accurately reflects what is happening in the manufacturing sector. The last 5 months ISM value below 50 = last 6 months industrial production shows a decrease.
US GDP. Another indicator that seems to show stable growth, but on closer inspection may also cause concern. Since the same July 2018, the growth rate of American GDP has been steadily falling. If in the second quarter of 2018, GDP growth was 3.2%, then in the third quarter of 2019 (the last value), it was already 2.1%. Let's see what the value will be in the fourth quarter of 2019. By the way, all of the above indicators are in some way a response to all those interested in Donald Trump's foreign economic policy and its results. It was at the time when Trump launched a trade war with China that the GDP of the States began to decline and continues to decline at the moment. It was at this time that industrial production began to decline. Thus, from our point of view, Trump's policy towards China, and in the future, the European Union, is destructive for the American economy itself.
Separately, we would like to mention the topic of the trade war. After Washington and Beijing signed the "first phase" of the agreement, the markets somehow calmed down on this score. It even seems as if the parties to the conflict have signed a full trade agreement and now there are no more disagreements between them. But this is not the case. Most of Trump's duties remain in effect, and the parties are facing difficult "second phase" negotiations that will address more complex issues than in the first stage. Thus, the trade war has not ended and continues to affect the world economy, the US economy, and the EU economy. Trade conflict with the EU is also looming on the horizon.
In general, we can say that the US economy has been slowing down over the past year and a half. However, this can only be seen in terms of GDP and industrial production. Other indicators are normal and keep the economy afloat. If industrial production and GDP continue to decline, this may be a good reason for the Fed to lower the rate again.
The average volatility of the euro-dollar currency pair is currently 40 points. However, only one day out of the last five ended with a value above 42 points. Thus, we have volatility levels as of January 29 - 1.0982 and 1.1062. A downward reversal of the Heiken Ashi indicator will indicate a resumption of the downward movement. From a technical point of view, the downward trend is visible to the naked eye.
Nearest support levels:
S1 - 1.1017
S2 - 1.0986
S3 - 1.0956
Nearest resistance levels:
R1 - 1.1047
R2 - 1.1078
R3 - 1.1139
Trading recommendations:
The euro-dollar pair started to adjust. Thus, sales of the European currency with the targets of 1.0986 and 1.0982 are currently relevant if the Heiken Ashi indicator turns down. It is recommended to return to buying the EUR/USD pair with the target of 1.1078 not before fixing the price above the moving average line, which will change the current trend for the pair to an upward one.
In addition to the technical picture, you should also take into account the fundamental data and the time of their release.
Explanation of the illustrations:
The upper channel of linear regression - the blue lines of the unidirectional movement.
The lower channel of linear regression - the purple lines of the unidirectional movement.
CCI - the blue line in the indicator window.
The moving average (20; smoothed) - the blue line on the price chart.
Murray levels - multi-colored horizontal stripes.
Heiken Ashi - an indicator that colors bars in blue or purple.
Possible variants of the price movement:
Red and green arrows.