4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 125.5955
The EUR/USD currency pair was trading like a "funeral" for most of the day on Wednesday. In the middle of the second half of the day, the volatility was about 40 points, and a day earlier, it was 36 points. Thus, by the middle of the trading week, the market finally "died," and all hopes remained only for the Fed meeting and its results. We will deliberately not consider the results of the Fed meeting in this article, since today the lion's share of all articles and reviews will be devoted to this. We do not believe that the Fed meeting at this time and under these conditions will radically change anything and dramatically impact the balance of power between the European currency and the dollar. And Jerome Powell's speeches already happen with enviable regularity, so the markets are already familiar with his rhetoric, and it is unlikely that it has changed dramatically over the past week.
Today, we would like to focus on the notorious EU economic recovery fund for 750 billion euros, which was approved last summer and is still not even formed. At one time, we thought it was all European bureaucracy, but then it turned out that the European Commission had initially planned to start distributing the fund in the summer of 2021. On Tuesday, the finance ministers of France and Germany made pompous speeches, saying that "Europe is beginning a new chapter in its history." In reality, Olaf Scholz and Bruno Le Maire said they had presented their countries' plans for allocating funds from the reconstruction fund. However, at the same time, the Finance Ministers of France and Germany drew the attention of all listeners that the distribution of the fund should begin as soon as possible. "Last year, we were very effective in adopting the economic recovery plan and in deciding on the issue of general debt obligations. However, too much time has passed since then. China has resumed its growth. The US is booming. The EU must stay in the race," Le Maire said. And, from our point of view, these comments require analysis.
It is the American economy that remains the largest in the world. According to the statistics website Tradingeconomics, the European Union ranks second in the world. Thus, we can compare both of these economies at this time to understand how far both are from their pre-crisis trajectories and how far ahead the United States has gone. So, to begin with, let's assume that before the crisis, both economies were equal. That is, their GDP was equal. Now, since we have data on GDP for all four quarters of 2020, we start counting. In the United States, the economy first lost 5%, then 31.4%, grew by 33.4%, and another 4.3%. Thus, it turns out: 1,000,000 - 5% - 31.4% + 33.4% + 4.3% = $ 906,750. Similar calculations for the European economy: 1,000,000 - 3.8% - 11.6% + 12.5% - 0.7% = $ 950,012. Thus, the simplest calculations show that the European economy is recovering more slowly, but it also fell in 2020, also not as much as the American one. Roughly speaking, compared to the pre-crisis values, it is the European economy that is ahead. However, in the first quarter of 2021, the US GDP should grow by another 6.1-6.3%, and the European economy should shrink again by about 1%. Thus, we get the total value of US GDP = $ 922,062 and the total value of EU GDP = $ 940,511. That is, according to the results of the first quarter of 2021, the US economy has pulled ahead compared to pre-crisis values. What does this mean in practice? It means that at this time, the US economy already has a better position than the EU economy compared to the period up to 2020.
Given that all experts trumpet the highest rate of recovery of the US economy, it is likely that it will continue to grow at a high rate, but the EU economy is far from a fact. The first quarter, as we have already found out, will be "minus." In the second quarter, growth may be insignificant, as a new wave of the pandemic has begun in the European Union, and some countries have gone to a new quarantine. The EU recovery fund will not be distributed until the summer of 2021, so we should not expect an acceleration in the recovery of the European economy before the summer of 2021.
Thus, the European currency unexpectedly gets an additional factor of falling against the US dollar. We have repeatedly said that the most important factor is now considered to be the factor of pumping trillions of dollars of stimulus into the US economy. Still, the difference in the pace of recovery of the EU and the US economies can also play a specific role for the markets. We'll see. So far, this factor is more hypothetical. We understand that the US economy has overtaken the European one, which may lead to a rise in the dollar, but we should not rush to sell the European currency. It should be remembered that in the long term, an uptrend persists, so now there is still a greater chance of further growth in the euro/dollar quotes and not vice versa.
There is still an upward trend in the short term, and even if the price is fixed below the moving average line in the near future, this does not mean that the upward trend is over. The upward movement is very weak, so the moving average line is constantly close to the price. Therefore, any more or less strong correction can lead to a consolidation of the price below the moving average.
The volatility of the euro/dollar currency pair as of April 28 is 67 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2056 and 1.2190. A reversal of the Heiken Ashi indicator downwards will signal a new round of correction.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading recommendations:
The EUR/USD pair maintains an upward trend. Thus, today it is recommended to stay in long positions with targets of 1.2146 and 1.2190 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders if the pair is fixed below the moving average line, with targets of 1.2024 and 1.1963.