4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -123.3160
On Friday, June 18, the EUR/USD currency pair continued the downward movement all day, which began on Wednesday evening. Recall that then the Fed summed up the results of the next meeting, and the markets reacted very violently to those minor changes and statements from the Federal Reserve System and its representatives. Only three points have changed. First, the Fed raised its GDP forecasts and lowered its unemployment forecasts for 2021-2022. However, this point cannot be interpreted in favor of the dollar at all. Forecasts for the economy are rising from meeting to meeting. It is not news. And unemployment is generally too slippery. For example, a couple of months ago, the actual number of unemployed was called about 10 million Americans. At the same time, the current number of unemployed is 10 million higher than it was before the pandemic. Thus, unemployment of about 5.8% and its forecasts of less than 5% look great, but in reality, things are worse. Secondly, the number of Fed's monetary committee members who believe that the rate will be raised in 2022 has increased. Now they are 7 out of 18. 13 members of the committee of 18 believe that the rate will be increased in 2023. Thus, the chances that the rate may start to rise as early as next year has increased. Although, of course, it will depend on many factors. Third, Jerome Powell openly stated that the last meeting of the Fed became the starting point for discussion about the curtailment of the quantitative stimulus program.
It should be noted that we are only talking about the beginning of the discussion of this issue. In reality, the QE program may begin to shrink by the end of the year. However, the markets regarded all these points as powerful "bearish" factors, and the pair collapsed downwards. From our perspective, the psychological factor played a much more significant impact on the current strengthening of the US currency. As we have already said, the pair's quotes were almost in one place for about a month. Thus, traders were very much in need of some push that would guide them. This push was the Fed's meeting, but hardly anyone will argue that the information provided by the Fed deserves a rise in the dollar by 250 points.
Moreover, the growth of the US currency is not even complete yet, but the fundamental global factors that brought the pair to its 3-year highs remained the same. Thus, we believe that in some ways, such a strong drop in quotes right now and right after the Fed meeting is not entirely justified. However, the downward trend is formed, and it is effortless to work out using the "Linear Regression Channels" system because there is no single correction or pullback. Furthermore, the Heiken Ashi indicator does not even try to turn up, so there is no reason to close short positions.
Now it remains only to find out what to expect for traders next week. Naturally, first of all, the eye falls on the calendar of macroeconomic events. On Monday and Tuesday, it will be empty. Thus, there are already questions about what kind of movement the pair will have these days. After all, on Friday, there was also no essential news and publications.
Nevertheless, the US dollar continued to strengthen. Although on the last trading day of the week, it would be more logical to take profits on short positions. Thus, it is best to rely on technical analysis when making trading decisions in the first two days of the week. On Wednesday, the situation will become a little better and more interesting. The United States and the European Union will publish business activity indices in the services and manufacturing sectors. Unfortunately, it is unlikely that anything extraordinary should be expected from these data since they have recently been consistently released at high values. Respectively, the markets are unlikely to be surprised by the new figures. However, if the actual value of a particular indicator is very different from the forecast, then a certain reaction of traders may follow. However, it is still unlikely to be strong. On Thursday, the US will publish reports on GDP for the first quarter, the number of orders for long-term goods, and applications for unemployment benefits. The first and the latter will be ignored, and the markets have ignored the report on orders for durable goods for a very long time. So, in theory, this data can be worked out, but be prepared because everything will be the other way around. There will also be some statistics on Friday. Only the index of personal consumption expenditures in the United States and data on changes in personal income and spending of Americans for May. This data is also unlikely to cause a reaction of more than 20-30 points. Separately, I would like to mention the speech of ECB President Christine Lagarde scheduled for Monday. However, everything will depend on what exactly Lagarde will say and whether she will say anything important at all. Thus, in general, we can conclude that the fundamental and macroeconomic backgrounds will be quite weak next week. Therefore, it is recommended to pay more attention to technical analysis, preferably of all the most important timeframes.
Separately, I would also like to note that there are no important fundamental topics right now. We continue to pay increased attention to the money supply indicators in the European Union and the United States. However, so far, nothing has changed here since both maintain a gap between them in favor of American aggregates, and this gap continues to increase. Thus, in the long term, we continue to expect the fall of the US currency and the growth of the euro and the pound. However, it should be recognized that everything will depend on the market participants themselves. And if the Fed starts to wind down its stimulus programs in the near future, this may help the US dollar protect itself from new strong falls.
The volatility of the euro/dollar currency pair as of June 21 is 84 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1779 and 1.1947. A reversal of the Heiken Ashi indicator to the top will signal a round of upward correction.
Nearest support levels:
S1 – 1.1841
S2 – 1.1780
S3 – 1.1719
Nearest resistance levels:
R1 – 1.1902
R2 – 1.1963
R3 – 1.2024
Trading Recommendations:
The EUR/USD pair continues a strong downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1841 and 1.1780 until the Heiken Ashi indicator turns up. Furthermore, it is now recommended to open buy orders no earlier than the price is fixed above the moving average line. In any case, the markets should be given time to calm down after the publication of the results of the Fed meeting.