The EUR/USD currency pair continued to feel ultra-calm on Wednesday. Unlike what is happening now in the world and in other markets. Recall that all the news now concerns the Ukrainian-Russian conflict, in which the West has also been involved to one degree or another. However, as we have repeatedly said, the euro, the pound, or the dollar now practically do not react to these events. We believe that the markets are now in the opposite state of panic. In other words, they froze in anticipation. On the one hand, everything that could be bad has already happened, but on the other hand, it could be even worse. At the moment, the Russian Federation continues to accumulate its troops along the Ukrainian border and in the Black Sea. Thus, the probability of a full-scale war is growing day by day. It is still unclear exactly how the euro or the dollar can react to such news. Logically, the US currency can and should be in high demand as a "reserve" currency. But it seems that the market is now in some shock from what is happening.
No, wars have happened throughout the history of mankind. But it's one thing when different nations are fighting, and another thing is when fraternal, which have been part of the same country for a long time. In general, all this, to be honest, is not fun, but let's go back to the euro/dollar currency pair. At the moment, a flat has developed and is not going to end on it. On the 4-hour TF, it is visible that the pair failed to overcome the Murray level "1/8" - 1.1292 for the second time, so in the coming days, it may move in the direction of the 14th level. It is the levels of 1.1300 and 1.1400 that are now the approximate boundaries of the side channel. It makes no sense to make any distant forecasts now. Simply because it is completely unclear what will happen next in Ukraine. The market can stand in one place, and then start to fall or grow sharply, as it was in the first months of the pandemic in 2020.
The balance of power between the dollar and the euro does not change.
As already mentioned, now the euro/dollar pair is in a limited price range. There is practically no macroeconomic background. Fundamental - too. All the news is about geopolitics and it looks like a really big mess is coming. However, let's try to focus on the economy. For the euro and the dollar, the situation has not changed in recent weeks. No news could change the balance of power between the euro and the dollar. Everything still boils down to the fact that monetary policy and the state of the economy in the US and the EU are very different. The US economy continues to show high growth rates (about 6.7% in the fourth quarter), while the EU economy is hanging around 0%. The Fed is almost guaranteed to raise the key rate several times this year. Moreover, "several" is still too mildly expressed. Market participants are confident that we are talking about at least five increases in 2022, and maybe more. The ECB continues to say that they will not be equal to the Fed and are not going to raise the rate this year. The most optimistic forecasts suggest that the rate may be raised sometime at the end of 2022.
Thus, at this time, the dollar has much more reason to continue growing than the euro. Perhaps the markets simply do not want to force things and want to wait for the next Fed meeting, at which the rate hike will be officially announced. Still, it should be taken into account that even if the rate rises at every meeting, this hardly means that the US currency will continuously grow throughout 2022. It has much more chances of growth this year, but there are also banal technical corrections that should also be taken into account. Thus, the conclusion is this: we should expect a new strengthening of the dollar in the medium term, but at the same time, rely on technical analysis when making trading decisions.
The volatility of the euro/dollar currency pair as of February 24 is 69 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1240 and 1.1378. The upward reversal of the Heiken Ashi indicator signals a turn of upward movement inside the side channel.
Nearest support levels:
S1 – 1.1292
S2 – 1.1230
S3 – 1.1169
Nearest resistance levels:
R1 – 1.1353
R2 – 1.1414
R3 – 1.1475
Trading recommendations:
The EUR/USD pair continues to remain below the moving average line. Thus, it is now possible to consider short positions with targets of 1.1292 and 1.1240, but there is a high probability of a flat. Long positions should be opened no earlier than fixing the price above the moving average with targets of 1.1378 and 1.1414. However, even in this case, it should be borne in mind that there is now a possibility of a flat.
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.