The EUR/USD currency pair failed to continue its downward movement on Friday but remained below the moving average line. Recall that, from our point of view, the overall technical picture now looks like this. The week before last, contrary to the fundamental and macroeconomic background, the pair grew by 150 points, thanks to which it left the side channel, inside which it had been for more than a month. However, there were no fundamental reasons for strengthening the euro currency. Thus, when the pair began to fall last week, we thought that everything was logical. Moreover, now, in principle, there is no reason for the European currency to grow against the dollar. We have repeatedly compared the monetary policies of the Fed and the ECB, and this comparison shows that the ECB is not going to follow in the footsteps of the Fed this year. This was openly stated by Christine Lagarde last week. If earlier she said that the European economy was still too weak to tighten monetary policy and that the rate would not rise in 2022, then her last words were that the ECB would not chase the Fed, since the state of the American and European economies is different. As a result, the only reason why the euro currency can grow is the factor of saturation of traders with purchases of the American currency. That is, if at some point market participants fully work out all the factors of the dollar's growth (all rate hikes, curtailing QE) and start taking profits, then the euro will be able to grow in price. But, apparently, now traders are still looking towards purchases of the US currency, so there is not much to count on for the euro.
There won't be many important events.
There were practically no macroeconomic statistics last week. The US and EU calendars were almost empty. Let's see what the new week can bring us. Immediately, starting from Monday, traders will receive interesting information. For example, the indices of business activity in the services and manufacturing sectors for January in the United States and the European Union. Why is this data important now? It was in winter that the whole world was immersed in the next "wave" of the pandemic. Although omicron causes complications and deaths much less often than all previous strains, it is much more contagious, so the US and EU health systems still experienced serious problems. In addition, even if no one died at all, people still got infected and got sick, which means they were forced to go into quarantine and not work at this time. And as already mentioned, omicron is much more contagious than all previous strains, so the number of infected every day was estimated in the hundreds of thousands. Consequently, business activity may seriously slow down in these months, as well as many other macroeconomic indicators. The only question is exactly how much they will fall and where the fall will be big. For example, the business activity index in the EU services sector fell to 53.1 points in December. Recall that any value above 50.0 is positive. Thus, already today we can see how this indicator will fall below 50.0. In the States, the situation is slightly better in terms of business activity, since both indicators are quite far from the "critical level". Therefore, the main concerns are related to the EU. On Wednesday, the results of the next Fed meeting will be summed up, and this is, of course, the key event of the whole week. We will talk about it in more detail in the article on the pound/dollar. In addition, a report on GDP for the fourth quarter will be published in the States on Thursday, and since this is the first estimate, the actual value may differ significantly from the forecast. And this, in turn, can provoke a strong market reaction. Also on this day, a report on orders for long-term use goods in the United States will be released, but it has not interested traders for a very long time. On Friday, there will be only minor publications both in the States and in the EU. Thus, all the attention this week is on the Fed meeting and the US GDP report.
The volatility of the euro/dollar currency pair as of January 24 is 60 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1284 and 1.1404. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 1.1322
S2 – 1.1292
S3 – 1.1261
Nearest resistance levels:
R1 – 1.1353
R2 – 1.1383
R3 – 1.1414
Trading recommendations:
The EUR/USD pair continues to be located below the moving average line. Thus, new short positions with targets of 1.1322 and 1.1292 should now be considered if the Heiken Ashi indicator turns down. Long positions should be opened no earlier than the price-fixing above the moving average line with targets of 1.1383 and 1.1414.
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.