4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 55.8553
On Tuesday, the EUR/USD currency pair continued to trade exactly in the same direction as in recent weeks: a slight but steady upward movement, minimal corrections. Thus, it is hardly possible to conclude that the reasons for this particular movement are the fundamental background or macroeconomic events. Most likely, a stable trend has just formed, and new traders are joining it. And even more likely, new hundreds of billions of dollars have begun to flow into the US economy, which increases the supply of US currency on international markets, naturally reducing the value of this currency. Let's take a closer look. At the moment, the quotes of the euro/dollar pair are only 220 points below the maximum for the last 2.5 years, which was reached in January 2021. There was a trend of 1,700 points up, after which the pair corrected by 600 points, which is not bad, and now in recent weeks, it has increased by 400 points. For what reason? Was there any apparent fundamental reason for the very impressive growth of the European currency? It seems to us that the opposite is true. All the most important events of recent weeks have been in favor of the dollar. Here are some pretty strong statistics, starting with NonFarm Payrolls, and here is the very logical and optimistic rhetoric of Jerome Powell. Yes, we believe that Jerome Powell is saying what needs to be said at this time. In general, it is not clear who came up with the idea that the Fed should now hint at a reduction in the quantitative stimulus program if the world economy has just begun to recover from the crisis, and the "coronavirus" is still raging in many countries? Recently, many experts say that Powell has made it clear several times that the "ultra-soft" monetary policy will continue almost until 2023. What's so surprising about that?
Until the pandemic is completely defeated, the crisis will manifest itself to one degree or another. Now it has been only 13 whole months since the beginning of the pandemic. It is impossible to talk about a full recovery of the economy even in the United States, although this country is objectively in first place in the world in terms of pace. So why should Powell even hint at a tightening of monetary policy? And, you will agree, it sounds strange: the US dollar has fallen for three weeks in a row because Powell did not want to hint at a tightening of monetary policy in the foreseeable future. How much longer will the dollar fall? Until 2023 when Powell announces a rate hike? In general, from our point of view, everything is still going according to the plan that we have already discussed many times. The US dollar will continue to fall in price simply because the money supply in the US is inflating before our eyes. That's all. Of course, there may be new factors that will affect the movement of the pair and the dollar exchange rate in the future, but so far, there are no such factors.
Thus, we again draw attention to the fact that the price is now only 220 points from the 2.5-year high. What is it doing here, anyway, if everything is so good in the States? This week, in fact, today, the Fed will hold a meeting, where traders can not wait for any super-important and interesting information. Simply because Jerome Powell has spoken enough times recently to clearly understand what his opinion is about monetary policy and the US economy at this time. Even without straining your memory too much, you can immediately recall several of his main theses, which he voiced, both recently and long ago. For example, about inflation: "We will allow inflation to rise above 2.0% y/y to offset periods of low inflation." It is a saying Powell said last year when the Fed decided to change the principle of targeting inflation slightly. It would be strange if the Fed, at the slightest excess of 2.0%, immediately rushed to reduce the QE program and raise rates. Low inflation in the United States has been observed for years, but above the 2.0% level, it climbed for the first time since the end of 2019, when the inflation rate was 2-2.5% for four months. "The US economy is recovering very quickly." And here, it is difficult to argue since American GDP in the first quarter of 2021 can grow by more than 6%, while, for example, in the EU, it can shrink by 1.2%. "The economy still needs to be stimulated, and the pandemic still harms it." "Monetary policy will begin to tighten only when the economy fully recovers, and the labor market reaches pre-crisis employment levels." "Rates will not start rising until 2023 at the earliest." All these sayings the market has heard more than once, so today we are unlikely to learn anything new. However, if Powell does start hinting at the Fed's quantitative easing program at the imminent end, this could support the US dollar. If Powell continues to praise the pace of the economic recovery, it could support the US dollar. But we are more inclined to believe that the reaction of the markets to the outcome of the Fed meeting, in general, can be unpredictable. How many times has it happened that the results say the same thing, and the reaction to what is happening is the opposite? Each of the market participants will "hear" something different, interpreting Powell's words in their way. Perhaps today, it will be just like that.
And the dollar, by the way, is not "getting more expensive on the eve of the Fed meeting." The dollar has moved in the last three weeks and will continue to move in the same way. At least when paired with the European currency. The quotes continue to be located above the moving average line, so the upward trend continues. In the near future, the pair may reach the Murray level of "7/8"-1.2146.
The volatility of the euro/dollar currency pair as of April 27 is 60 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2011 and 1.2131. The upward reversal of the Heiken Ashi indicator signals the resumption of the 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 maintains an upward trend. Thus, today it is recommended to open new long positions with a target of 1.2131 after the reversal of the Heiken Ashi indicator upward. It is recommended to consider sell orders if the pair is fixed below the moving average line with targets of 1.2011 and 1.1963.