The EUR/USD currency pair simply and calmly continued to fall against the US dollar on Monday. There was hope that a correction would begin on Monday, but already the night trading showed that there would be no correction. From our point of view, now the European currency is showing an excessively strong fall again. Yes, at the end of last week, when the euro lost about 200 points, there were important events that could hypothetically provoke such a movement. However, we recall that the results of the ECB meeting were not a failure so the euro fell by 100 points. American inflation accelerates every month, but not every time provokes a 100-point rise in the dollar. Well, yesterday, there were no important events and publications at all, why did the euro continue to fall?
The first possible reason is the future meeting of the Fed, which will end this week on Thursday. It can be assumed that the rate will be increased by 0.5%, and maybe even by 0.75%. Naturally, this is a bullish factor for the dollar. The second possible reason is technical. The downward trend has been maintained for almost two years, and the last upward correction was so weak that it clearly showed that the bulls are not ready to buy. Therefore, what do we have? The technical factor that has been insisting on the growth of the European currency for a long time has now, it turns out, been worked out. The euro rose by 450 points, formally this is enough to resume the fall. The fundamental factor, as it was on the side of the dollar, remained there. The macroeconomic factor alternately supports the dollar and the euro, but cannot cancel out all the other, stronger factors. The geopolitical factor also plays into the hands of the US dollar. So it turns out to be a situation where again almost all factors speak in favor of further strengthening of the dollar. The euro remains to rely on luck. Technically, in the near future, the pair may fall to its 20-year lows and, most likely, will overcome them.
The market factor is also against the euro.
There is another not entirely obvious factor that works against the euro. Market sentiment factor. It happens when there seems to be no visible reason for the growth or fall of one of the currencies, but at the same time, there is a clear trend. And if there is a clear trend, then most traders will want to join it to make a profit. That's how it turns out that there may not be grounds, but there is movement. Now, when a strong and long-term downward trend persists, when the fundamental, geopolitical and macroeconomic background unequivocally supports the dollar, the euro currency has no chance at all. Purely hypothetically, we can assume that the situation will change a little this Thursday. After all, it is not entirely logical for the market to react to the results of the ECB meeting, so it can do the same with the results of the Fed meeting. It can be assumed that the current growth of the dollar is already working out a future Fed rate hike. Moreover, yesterday, it became known about a possible increase of 0.75%. If so, then on Thursday we will see a highly volatile, but at the same time a reverse movement.
However, the European currency may update its 20-year lows before Thursday. What can save the euro in the current situation? First is a sharp tightening of the ECB's monetary policy, which, of course, we will not wait for in the near future. Second is the end of the geopolitical conflict in Ukraine, which we are also unlikely to wait for in the near future. Third, very weak macroeconomic data from overseas on GDP will make it impossible to further increase the key rate. Recall that GDP in the first quarter decreased in the States by 1.5%. If, for example, the indicator decreases in the second quarter, this may be a good enough reason to at least take a break in the cycle of tightening monetary policy. We simply don't see any other chances for the euro currency right now. The junior linear regression channel may turn back down in the near future and then all technical indicators will signal a downward trend.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of June 14 is 108 points and is characterized as "high". Thus, we expect the pair to move today between the levels of 1.0332 and 1.0541. A reversal of the Heiken Ashi indicator back up will signal a new round of upward movement.
Nearest support levels:
S1 – 1.0376
S2 – 1.0254
S3 – 1.0132
Nearest resistance levels:
R1 – 1.0498
R2 – 1.0620
R3 – 1.0742
Trading recommendations:
The EUR/USD pair continues to fall strongly without the slightest hint of a correction. Thus, it is now possible to stay in short positions with targets of 1.0376 and 1.0332 until the Heiken Ashi indicator turns upwards. Long positions should be opened with a target of 1.0742 if the price is fixed above the moving average.
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 you should trade 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.