4-hour timeframe
Technical details:
Higher linear regression channel: direction - down.
Lower linear regression channel: downward direction.
Moving average (20; smoothed) - down.
CCI: -85.0948
The upward correction for the EUR/USD pair has begun. At least this is now evidenced by the Heiken Ashi indicator, which turned up. The correction at the moment is characterized as very weak, but there are chances for its development. Over the past day, no important macroeconomic report has been published in the eurozone or the United States. But the speeches of Christine Lagarde and Jerome Powell took place. If we spoke about the speech of the Fed chief before the US Congress in the previous article on EUR/USD, then the speech of the ECB chairman was not affected. Namely, her speech was potentially more interesting, since everything is fine with the US economy at the moment, which is confirmed by recent reports, but the European Union continues to stall. The indicators of the state of the US economy remain much higher than the European ones, so Lagarde's speech should have been more dovish. However, the ECB president, in a speech to the European Parliament, managed to avoid a frankly dovish rhetoric. Lagarde said on Tuesday that an overly soft monetary policy negatively affects savings income and increases the cost of various assets. Once again, the ECH head called on European governments to stimulate economic growth. This primarily concerns, of course, the largest states, where the signs of economic slowdown are least visible. However, for such states (Spain, the Netherlands, Germany, France), the situation is such that they must drag the whole EU along, which, of course, is not pleasant to the governments of these countries and so far no one has heeded the calls first of Mario Draghi, and now Lagarde. The head of the ECB also said that "the longer the stakes are at" ultra-low "values, the greater the likelihood that negative effects will manifest themselves more." Also, Lagarde noted that central bank economists are now focused on finding the answer to the question "is it necessary to lower the inflation target?" At the moment, it remains at the level of "slightly below 2%" and the consumer price index cannot reach this target for the past eight years. This refers not to a one-time exit at 2%, but a long-term inflation rate at this level. Furthermore, Lagarde, unlike Powell, did not touch on the topic of the coronavirus in China.
It would probably be worth it to touch on this topic. According to the latest experts, the epidemic has begun to slow down. The infection growth rate is falling, a certain number of infected people have recovered. Firstly, this means that the virus is not fatal in all cases. Secondly, with existing drugs in some cases, the patient can recover. Thirdly, it is possible that the spread of the epidemic was localized. Of course, it is too early to open champagne, but the news is certainly good. On this occasion, Donald Trump himself spoke out, who predicted the death of the virus in April. According to Trump, the coronavirus is afraid of the heat and, accordingly, in April, when the warm season begins in China, the virus will not be able to cope with the changing climatic conditions. I'd like to believe in it.
To date, another Powell statement in Congress is planned, which, in our opinion, is unlikely to be too different from yesterday. Thus, the Fed chief, most likely, will again focus on positive theses that have long been known to everyone. Also on Wednesday, February 12, industrial production in the European Union for December is set to be published. And although this indicator is not the most important in itself, we have repeatedly noted its high significance at the present time.
As can be seen from the graph above, industrial production has been in a deep negative in the last 13 months. And tomorrow, most likely, we will see a decline in the indication for the 14th consecutive month. Judging by experts' forecasts, December may not only end with another reduction in industrial production, but also outperform the rate of decline of the past 11 months, amounting to -2.8% y/y. In monthly terms, a reduction from -1.6% to -2.0% is expected. However, in any case, it is precisely about reduction. It is difficult to say whether weak production in the EU will cause the euro to fall. It is likely that it is not, since the euro currency has been falling non-stop in the last few days and there should still be a correction. However, we still recommend paying attention to the fast indicator Heiken Ashi, which may indicate the completion of the correction. We remind you that the common fundamental and macroeconomic backgrounds remain on the side of the US currency.
The average volatility of the euro/dollar currency pair is still 46 points per day. The correction has finally begun, but so far it is very weak. Thus, on Wednesday we expect movement between the boundaries of the volatility band of 1.0869 - 1.0961. We expect continued correctional movement.
Nearest support levels:
S1 - 1,0864
S2 - 1,0803
S3 - 1.0742
The nearest resistance levels:
R1 - 1,0925
R2 - 1.1047
R3 - 1,1108
Trading recommendations:
The euro/dollar began to adjust. Thus, selling the euro is currently relevant while aiming for 1.0869, but after the reversal of the Heiken Ashi indicator back down. It is recommended to buy the pair no earlier than when the bulls overcome the moving average line, which will change the current trend to an upward one, with the first target of 1.1047.
In addition to the technical picture, fundamental data and the time of their release should also be taken into account.
Explanation of illustrations:
The highest linear regression channel is the blue unidirectional lines.
The smallest linear regression channel is the purple unidirectional lines.
CCI - blue line in the indicator window.
Moving average (20; smoothed) - a blue line on the price chart.
Murray levels - multi-colored horizontal stripes.
Heiken Ashi is an indicator that colors bars in blue or purple.
Possible price movements:
Red and green arrows.