4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: 48.6665
On Wednesday, June 23, the EUR/USD currency pair continued to calmly adjust after falling last week to the moving average line, which eventually worked out. Thus, we can say that everything is going according to plan. We have already noted that a drop of 250 points looks like an overly strong reaction to the results of the Fed meeting, which were not so important. Thus, in any case, a correction after such a substantial fall looks like the most logical scenario. The main question is whether the pair will restore the upward trend, that is, overcome the moving average. We have already said that if we do not take into account the Fed's last meeting, nothing has changed at all for the US dollar. All global technical and fundamental factors still speak in favor of its depreciation. Thus, we expect that in the long term, the fall of the US currency will continue. However, we remind you that there is also a possibility of a new round of downward movement to the previous local minimum near the level of 1.1700. However, you can trade on a 4-hour timeframe relative to the moving average line in any case. It is also possible to trade on lower timeframes, but relative to the important levels and lines of the Ichimoku indicator.
Meanwhile, the speech of the head of the Federal Reserve, Jerome Powell, took place. Recall that last week, the Fed summed up the results of its regular meeting, and no extravagant decisions were made. Nevertheless, the markets reacted with three-day purchases of the dollar. We believe that even the phrase of Jerome Powell that the Fed may start discussing the curtailment of the quantitative stimulus program in the near future is not a strong bearish factor for the euro/dollar pair. First, it should be understood that the monetary committee members will only start discussing it in the near future. They may decide not to curtail the incentive program or to curtail it next year. Secondly, in any case, nothing has changed at this time, and the Fed is still buying securities worth more than $ 120 billion a month.
Thus, money continues to flow like a river into the American economy. In a speech on Tuesday, Powell noted that the main goal of the regulator is to stimulate the recovery of the labor market, and the Fed is not going to rush to raise rates just because inflation has accelerated in recent months. And here again, we need to achieve a full understanding of Powell's position. As for the entire Fed, the labor market is more important, which is just recovering far from what is expected of it. The last two reports on NonFarm Payrolls turned out to be worse than forecasts. But inflation is just growing steadily, but at the same time, almost all central banks of the world note that this is a temporary phenomenon based on factors that will soon cease to influence the consumer price index. For example, the price of oil has increased significantly in recent months. Accordingly, the price of goods that are associated with oil or gasoline has also increased. However, this is not the price increase that the Fed wants to achieve. The price should grow by 2% per year. At the same time, the last months had what is called a "low base." The same months of last year were at the height of the quarantine and the pandemic. Respectively, there was no price increase at all. Roughly speaking, inflation sank in those months, so now its current values compensate for it last year in some way. In addition, personally, Jerome Powell has repeatedly said that inflation will be allowed to go above 2% to compensate for periods of low inflation. Thus, the fact that the Fed is not worried about this indicator is the norm.
On Tuesday, Powell also noted that the US economy is recovering well, as the country is rapidly vaccinating the population and lifting quarantine restrictions. The head of the Federal Reserve also stated that huge budgets and monetary incentives continue to help the American economy. "Indicators of economic activity and employment continue to grow, and real GDP this year shows a record growth rate in recent decades," Powell said in Congress. However, the most affected by the pandemic (for example, tourism or transportation) remain in a deplorable state, although they are showing recovery. Thus, firstly, the US economy is recovering unevenly. Secondly, the labor market is still below the pre-pandemic levels, so the regulator will do everything possible to continue stimulating it. Powell believes that the latest unemployment rate of 5.8% does not reflect the real state of things. According to our estimates, it will take at least another year for unemployment to fall to the pre-crisis level, that is, to the level of 3.5%. Powell believes that the labor market will continue to grow as the population is vaccinated and the American and global economies recover. Also, Powell drew attention to the fact that the coronavirus pandemic still poses a serious threat. The Fed will continue to stimulate the economy until the recovery is fully completed. Thus, from our point of view, Powell stated how things are in reality at the moment. As we can see, in Congress, Powell did not say a word about the possible curtailment of the QE program. Therefore, there is a high probability that this decision will be postponed indefinitely.
Based on all of the above and in the absence of other important fundamental information, we can conclude that the US dollar is already losing the advantage it had at the end of last week. It should be understood that the strong strengthening of the dollar occurred not because the market changed its mood to "bearish" but solely because of one event. Thus, at this time, traders can return the pair to its original positions. In addition, it is possible that both major pairs took acceleration before overcoming their three-year highs. It is only a hypothesis, but it also happens sometimes. Both the pound and the euro were almost in the same place for a month. They did not manage to overcome their highs for three years, so traders could "let go" the pair a little, then start repurchasing it.
The volatility of the euro/dollar currency pair as of June 24 is 77 points and is characterized as "high." Thus, we expect the pair to move today between the levels of 1.1861 and 1.2015. A reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 1.1902
S2 – 1.1841
S3 – 1.1780
Nearest resistance levels:
R1 – 1.1963
R2 – 1.2024
R3 – 1.2085
Trading recommendations:
The EUR/USD pair continues to adjust. Thus, today it is recommended to open new short positions with targets of 1.1902 and 1.1841 if the price bounces off the moving average line. It is recommended to open buy orders now no earlier than the price is fixed above the moving average line with a target of 1.2024.