The EUR/USD currency pair began to adjust on Friday. This is the interpretation because the European currency has been growing all week. Even when there was no reason for it. Thus, at this time, there is a serious question of changing the global trend. For those who do not remember, the fundamental background remains not in favor of the euro. This does not mean that the euro should now fall every day, there should also be corrections, but still, an increase of 300 points in 5 days makes you think that perhaps traders no longer want to sell the euro, which they have been doing all last year. Also, an important fact should be noted immediately: the pair rose exactly to its previous maximum - the Murray level "4/8" - 1.1475. Thus, at the moment, everything looks as if the pair is preparing for the formation of a new upward trend, which may last for the next year or even two. But at the same time, such a movement may be an accident, which cannot be completely ruled out. The growth of the European currency may now recoup in the opposite direction since there are no factors for further growth. This happens from time to time in the foreign exchange market. The pair moves illogically, but then traders win back this injustice. However, at the moment, the price is above the moving average line, so it makes sense to talk about an upward trend. Even if only in the very short term. The fact that the last local maximum was not updated indicates the need for correction.
Inflation in the US remains the main catalyst for the Fed's actions.
What should traders expect this week from the fundamental background? Very little. Last week was full of super-important events and reports, so this week the calendar of macroeconomic events is almost empty. It is possible to note only the consumer price index in the United States, which will be published on Thursday, February 10. In the current circumstances, this report is of great importance. Recall that the Fed switched its attention from the labor market to inflation, as the latter has already grown to 7% in annual terms, despite Powell's assurances about its imminent slowdown. But so far, we see that energy prices continue to rise, the next "wave" of the pandemic has just receded, disruptions in supply chains are still unresolved, so there are no good reasons for falling inflation right now. Moreover, despite all the announcements of the Fed and concrete actions, it is not yet necessary to talk about tightening monetary policy in the literal sense of the word. It is tightening, but in fact, so far the Fed has only reduced the volume of stimulus. In February, about $ 30 billion will be poured into the American economy through the purchase of treasury and mortgage bonds. That is the stimulation continues, and the rate can be increased only next month. Thus, it is not necessary to rely on a rapid slowdown in consumer price indices.
Nevertheless, if inflation continues to rise, it will mean that the Fed has more and more reasons to raise the rate as quickly and as strongly as possible. For example, it can do this in March, but not by 0.25%, as is now expected by the markets, but immediately by 0.50%. The dependency here is simple: the stronger inflation continues to accelerate, the greater the likelihood of active and drastic actions from the Fed at the next meetings. For the US currency, this is a bullish factor. However, big doubts about this are formed due to last week, when the euro currency out of the blue increased by 300 points. Let's repeat: there are good reasons to assume that the markets have had enough of dollar purchases and have already taken into account all future rate increases in the current rate. This, of course, is only a hypothesis that will either have to be confirmed by technical signals or be refuted. Today, we are waiting for a correction, as the Nonfarm report on Friday turned out to be 4 times stronger than forecasts. European markets were deprived of the opportunity to work out this report, so today the pair's quotes may continue to fall.
The volatility of the euro/dollar currency pair as of February 7 is 98 points and is characterized as "high". Thus, we expect the pair to move today between the levels of 1.1350 and 1.1547. The reversal of the Heiken Ashi indicator downwards signals a round of corrective movement.
Nearest support levels:
S1 – 1.1414
S2 – 1.1353
S3 – 1.1292
Nearest resistance levels:
R1 – 1.1475
R2 – 1.1536
R3 – 1.1597
Trading recommendations:
The EUR/USD pair continues to be located above the moving average line. Thus, now we should expect a correction, after which we should look for an opportunity for new longs with targets of 1.1475 and 1.1536 after the Heiken Ashi indicator turns up. Short positions should be opened no earlier than the price-fixing below the moving average line with targets of 1.1230 and 1.1169.
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.