4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
The EUR/USD currency pair on Tuesday quite unexpectedly continued its upward movement from the very night, which seemed to be an accident on Friday. Nevertheless, the euro currency during the second trading day of the week at first increased by another 100 points and then fell by 140. Needless to say, such volatility is very rare for the euro/dollar pair, which is seen in the illustration below. All the available factors are now very difficult to "tie" to what is happening in the foreign exchange market. Let's try to figure it out. If the European currency is growing, then it is unlikely that this movement is connected with the "coronavirus", since it is in the European Union that several countries have been quarantined due to the fourth "wave", and several have tightened measures to counter the spread of the virus. If the movements of recent days are due to concerns about the Omicron strain, which, according to doctors, is more contagious and dangerous than other known strains, then both major pairs should move about the same way and, most likely, towards the US currency, which often becomes more expensive during various kinds of shocks in the world. However, the US dollar has not been growing just in the last few days, so not everything fits here either. Thus, the most likely conclusion that can be drawn is a purely technical correction of the euro/dollar pair, which has recently fallen much more strongly than the pound/dollar pair. Therefore, it is corrected more convincingly. At the moment, however, this movement is still a correction, since both linear regression channels are still directed downward. However, overcoming the moving allows us to expect a continuation of the movement to the north in the coming weeks. After all, in recent months, the US currency has grown well against the euro and, in our humble opinion, all the factors in favor of the dollar have already been worked out by the markets. The strengthening of the dollar yesterday was provoked by the speech of Jerome Powell and did not participate in the above-listed reflections.
Christine Lagarde calms the markets.
While the whole world is worried about a new strain of "coronavirus", which may postpone the full recovery of the economy for an indefinite time, Christine Lagarde tried to calm the markets. The head of the ECB speaks quite often, so not every one of her speeches arouses the interest of traders. Lagarde rarely makes really important statements, but she does not have to discourage or shock traders every time. Yesterday, for example, she said that the Eurozone is prepared for new strains and new "waves" of the pandemic, as well as for the economic consequences of them. "The markets are worried about the restoration of the European Union in 2022, but I think we have learned a lot. We know our enemy by sight and what measures need to be taken to win. We are all well prepared to respond to the fifth wave or the Omicron strain," Christine Lagarde said. She also urged everyone to get vaccinated, as "this is the only way to stop the virus." This statement was made around the same time that Fed Chairman Jerome Powell announced the high risks of a new strain and a new "wave" of the epidemic for the American economy. From this, one could conclude that the Eurozone is indeed better prepared than the United States, but this is not the case. Since "lockdown" is not a good weapon against a pandemic. It stops the spread of the virus, of course, but it also kills the economy. In the States, no one even talks about "lockdown" now. And the pace of economic recovery in the last 4 quarters was disproportionately higher than in the European Union. Thus, it is the euro currency that is primarily at risk due to a new, possible "wave".
From our point of view, the markets do not take this information into account at all yet. Moreover, if we assume that the euro/dollar pair was indeed adjusted against the global trend of 2020 for most of 2021, then now is the time to start a new global upward trend. Otherwise, on the most senior timeframes, we can observe complex movements in the coming years, not trend ones in any way. Recall also that the US currency has no fundamental support except for the one that concerns the Fed and tightening monetary policy. But how much can the dollar grow on this factor alone?
The volatility of the euro/dollar currency pair as of December 1 is 88 points and is characterized as "high". Thus, we expect the pair to move today between the levels of 1.1213 and 1.1388. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward movement.
Nearest support levels:
S1 – 1.1292
S2 – 1.1230
S3 – 1.1169
Nearest resistance levels:
R1 – 1.1353
R2 – 1.1141
R3 – 1.1475
Trading recommendations:
The EUR/USD pair continues to stay above the moving average, but it cannot continue moving up yet. Thus, new buy orders should be opened today with targets of 1.1353 and 1.1388 if the pair bounces off the moving average line. Sales of the pair should be considered if the price is fixed below the moving average, with targets of 1.1230 and 1.1213.
Explanations to the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.