The EUR/USD currency pair continued its upward movement on Wednesday, which began a day earlier. Yesterday, we already said that the European currency rose sharply on market expectations for the early conclusion of peace between Russia and Ukraine. The round of negotiations, which ended on Tuesday, gave some reason to believe that eventually, the parties will be able to agree. However, from our point of view, it is too early to celebrate the victory. As it turned out yesterday, there are still a huge number of unresolved issues between the parties. The most pressing issues are the ownership of Crimea and Donbas. Recall that the Ukrainian side requires the Russian Federation to restore its borders to the state of 1991. Moscow does not comment on this requirement. Thus, it is unclear how this issue will be resolved. Consequently, the euro may show growth for some time, but in general, the geopolitical situation has not changed at all now.
Military operations are continuing along the entire front line. Moscow's statements that troops are beginning to withdraw from Kyiv and Chernihiv are not confirmed by concrete actions. The Pentagon said it was not observing any withdrawal of troops. Thus, negotiations can only be used to take a pause in a military conflict. What for? To redeploy troops, tighten reserves, establish logistics and supply. From our point of view, the conflict can flare up again almost at any moment. We believe that it will be possible to rejoice only when a peace agreement is signed by Vladimir Putin and Vladimir Zelensky. Until this time, it is impossible to say anything with certainty. The euro/dollar currency pair is now above the moving average line, but in recent weeks it has already made at least three attempts to start a new upward trend. And each time later it dropped back below the moving. Thus, this time the growth of the euro currency may be short-term. Of course, if optimistic news continues to come from Turkey, this may support the demand for the euro currency. For a while.
Christine Lagarde expects the European economy to fall.
Although the euro showed growth on Wednesday, which can be called logical, if the market had not been focused on the Ukrainian-Russian negotiations alone and paid attention to Christine Lagarde's speech, the euro could have resumed falling yesterday. The fact is that the head of the ECB said that with each new day of the conflict between Ukraine and the Russian Federation, the consequences for the European economy are getting worse. Lagarde called on EU governments to finance their economies, as a recession could begin without investment. Investments should be both public and private. The head of the ECB also said that in the near future inflation will continue to accelerate due to rising energy and food prices. However, the ECB still does not intend to raise the key rate in 2022. At the last meeting of the regulator, it was decided to reduce the program of stimulating the APP economy. In April, it will amount to 40 billion euros, in May - 30 billion, in June - 20 billion. Recall that earlier it was assumed that the operation of this program would end only by the end of the year, but the regulator decided to speed up the process since any incentive program only strengthens the overall price increase. In the longer term, Christine Lagarde expects inflation to slow down, but she said this last year, and in practice, we only see that this indicator is growing almost every month.
Thus, there are no macroeconomic grounds for the growth of the European currency now. Therefore, we believe that the growth of the euro currency may be short-term. Easing tensions in Eastern Europe is good, but not only this one factor affects the balance of power between the euro and the dollar. Recall that the Fed has embarked on the path of tightening monetary policy and has already abandoned all stimulus programs. In addition, the Fed may start unloading its balance sheet this summer, which means removing excess liquidity from the economy. That is, the reverse process of stimulation will begin. It is also tightening and it is also a bullish factor for the US currency.
The volatility of the euro/dollar currency pair as of March 31 is 82 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1073 and 1.1236. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 1.1108
S2 – 1.0986
S3 – 1.0864
Nearest resistance levels:
R1 – 1.1230
R2 – 1.1353
R3 – 1.1475
Trading recommendations:
The EUR/USD pair has overcome the level of 1.1108 and can now continue its march to the north. Thus, long positions should now be kept open with a target of 1.1230 until the Heiken Ashi indicator turns down. Short positions should be opened with targets of 1.0986 and 1.0864 if the pair is fixed below the moving average.
Explanations of the illustrations:
Linear regression channels - help to 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.