The EUR/USD currency pair showed absolutely nothing interesting on Monday. On the one hand, this is not surprising, since the macroeconomic and fundamental backgrounds were absent on this day. On the other hand, we expected the strengthening of the US currency, since, from our point of view, the market reaction on Friday to the data from overseas was not fully worked out. But, as it turned out yesterday, the market was not going to additionally work out a strong Nonfarm, so the pair stood in one place all day just above the moving average line. Thus, formally, the upward trend is now maintained, although it can be broken at any moment. The upward trend continues, but the growth of the European currency has been absent for a week. We believe that the US dollar still has more chances of growth this week. Even if we assume that an upward trend has now begun to form, then its first round has already been completed, therefore, a downward correction should follow. What we saw last week cannot be called a correction, so there is likely to be another round.
A meeting of the European Central Bank will be held this week, and we do not expect that Christine Lagarde's rhetoric will become much tougher and that the regulator itself will take any steps toward reducing inflation. We have already said that at the moment the ECB continues to implement the APP program, which is quantitative stimulation. That is, it simply does not make sense to raise rates now, since monetary policy cannot be tightened and softened at the same time. Although in recent weeks some European officials have announced a possible rate hike in 2022, and some even talked about an increase of 0.5% at a time, we believe that so far this is all just talk. If the ECB were "aiming" to raise the rate, Christine Lagarde would openly talk about it. But just the head of the ECB does not give any specific information about this, which gives rise to a lot of talk and doubts about the readiness of the ECB to go for tightening at all. After all, it is absolutely clear to everyone that an increase in the rate even by 0.5% will not give any positive effect on the issue of inflation.
Erdogan continues to play a double game.
One of the key geopolitical issues in the world right now is not even the conflict between Ukraine and Russia. The attention of the markets has shifted to the possible accession of Sweden and Finland to NATO. Recall that these countries decided to abandon their non-aligned status, which has been maintained for almost 100 years after the Russian Federation invaded Ukraine with a "special operation". And Finland has the longest land border with Russia, on which NATO bases can be located, which the Kremlin naturally wants to prevent. True, the Kremlin itself cannot directly influence the situation in any way, but then Ankara came to his aid.
Turkish President Recep Erdogan said that his country would not approve the entry of Sweden and Finland into the Alliance, as these countries support the Kurdistan Workers' Party, which is recognized as a terrorist organization in Turkey. No one cares at this time that only Turkey has recognized this party as a terrorist one. Nevertheless, now it is Erdogan who is blocking the entry of Scandinavian countries into NATO. According to many experts, Erdogan has started a dangerous game, the purpose of which is to increase the importance of Turkey in the international arena. Recall that it is Ankara that regularly tries to mediate between Ukraine and Russia in negotiations, it is Ankara that blocked the Bosphorus for Russian warships, and it is Ankara that practically does not impose any sanctions against the Russian Federation. That is, now it is even impossible to say which side Turkey is on now, and Erdogan himself is acting completely illogically. Experts believe that support for Kurdistan is just a pretext. Erdogan does not want to spoil relations with Russia, as he sees economic benefits for his country and the expansion of cooperation with Moscow against the background of the introduction of unprecedented sanctions against Russia from half the world. Nevertheless, the European Union has already shown that the opinion of one person or one country is not an obstacle to making serious decisions. The main thing is that the geopolitical situation does not worsen even more because of this.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of June 6 is 88 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.0630 and 1.0806. A reversal of the Heiken Ashi indicator back up will signal a possible new round of upward movement.
Nearest support levels:
S1 – 1.0620
S2 – 1.0498
S3 – 1.0376
Nearest resistance levels:
R1 – 1.0742
R2 – 1.0864
R3 – 1.0986
Trading recommendations:
The EUR/USD pair has consolidated back below the moving average and is trying to adjust again. Thus, it is now possible to stay in short positions with targets of 1.0620 and 1.0612 until the Heiken Ashi indicator turns up. Long positions should be opened with targets of 1.0792 and 1.0864 if the price is fixed above the moving average line. At this time, there is a possibility of a "swing".
Explanations of 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.