On Monday, the EUR/USD pair continued the growth process in the direction of the corrective level of 127.2% (1.0705), and today, on Tuesday, it worked out this level and closed above it. Thus, the growth of quotes of the European currency can now be continued in the direction of the next Fibo level of 100.0% (1.0808). I will also note the upward trend corridor, which continues to characterize the mood of traders as "bullish". Yesterday was supposed to be uninteresting. The calendar of economic events did not contain a single interesting entry. However, by the end of the day, it became known that ECB President Christine Lagarde made a speech that day and her rhetoric on the monetary policy had changed quite a lot. In particular, Lagarde said that the APP program will be completed at the beginning of the third quarter, and rates will cease to be negative by the end of the third quarter. Let me remind you that at this time the loan rate is 0%, and the deposit rate is -0.5%.
Thus, to proceed to the classic rate increase, you must first return it to at least zero. However, even such a weak tightening of monetary policy is now perceived very positively by traders. For a long time, Lagarde did nothing but talk about the weakness of the European economy and refused to raise the rate in 2022. Now we are talking about two increases in the deposit rate. Traders are finally getting clear signals about the ECB's readiness to join the Fed in raising rates, so the euro currency has the potential for average growth. I do not expect strong growth of the euro currency in the near future, since even if the ECB raises the rate to 0%, the Fed may increase its rate to 2.25% this summer. Therefore, the ECB will still lose to the Fed. And how the European regulator is going to deal with high inflation through the 0% rate, I do not understand. We can all see now that even raising the rate to 1% (the Fed and the Bank of England) does not affect inflation.
On the 4-hour chart, the pair secured above the corrective level of 100.0% (1.0638). Thus, the growth process can be continued in the direction of the upper line of the descending trend corridor. Fixing it will work in favor of continuing the growth of the euro currency in the direction of the Fibo level of 76.4% (1.1041). Emerging divergences are not observed in any indicator today.
Commitments of Traders (COT) Report:
Last reporting week, speculators opened 2,540 long contracts and closed 1,270 short contracts. This means that the bullish mood of the major players has intensified again. The total number of long contracts concentrated on their hands is now 230 thousand, and short contracts - 210 thousand. As you can see, the difference between these figures is small and you can't even say that the European currency has only been falling in recent months. In recent months, the euro has mostly remained bullish, but this did not help the EU currency. Now the situation is about the same. The COT report continues to say that major players are buying euros, and the euro, meanwhile, is falling. Therefore, the expectations of COT reports and the reality now simply do not coincide.
News calendar for the USA and the European Union:
EU - index of business activity in the manufacturing sector (08:00 UTC).
EU - index of business activity in the service sector (08:00 UTC).
US - index of business activity in the manufacturing sector (13:45 UTC).
US - PMI index for the service sector (13:45 UTC).
US - Chairman of the Fed Board of Governors Jerome Powell will deliver a speech (16:20 UTC).
EU - ECB President Christine Lagarde will deliver a speech (18:00 UTC).
On May 24, the calendars of economic events in the European Union and the United States are full of interesting events. The indices of business activity in the Eurozone have already come out and turned out to be slightly worse than expected. However, the speeches of Lagarde and Powell are more interesting tonight. The information background in the rest of the day can have a strong impact on the mood of traders.
EUR/USD forecast and recommendations to traders:
I recommend selling the pair if there is a rebound from the upper line of the corridor on the 4-hour chart with the target level of 1.0574. I recommended buying the euro currency when closing above the 1.0574 level with a target of 1.0705. This level has already been reached. I recommend new purchases when anchoring above the corridor on a 4-hour chart with targets of 1.0896 and 1.1041.