The EUR/USD currency pair remained in an incomprehensible movement during Wednesday, which can be classified as a "flat" and a "swing." Trades are held in the range of 0.9900-1.0080, that is, inside the channel with a width of 180 points. It does not quite fit the definition of a flat, although, of course, the side channels are different. But we are still used to the fact that the channels on the 4-hour TF are narrower. If we look at the movement of the last week and a half with a more general view, then this is certainly a correction. The correction is strange, weak, unconvincing, and, generally, the same as we have already become accustomed to over the past six months. The price was fixed above the Ichimoku cloud once or twice during this correction, but can such consolidation be considered a "trend change"? The euro currency is no longer afraid of price parity with the dollar and does not seek to move away from it as soon as possible. The market has accepted the new realities, so we believe that the pair's decline will resume and can continue for several more months completely freely. Although the European currency has fallen very much over the past 1.5-2 years (from 1.2300 to 0.9900), this is not an argument in favor of ending the downward trend.
Although the fundamental and geopolitical backgrounds have improved a little recently (at least, the conflict between Serbia and Kosovo was avoided, and the ECB intended to raise its rate several more times), but, as we can see, the European currency still cannot extract any dividends from this. And it would be foolish to think that avoiding one conflict can turn the market in the opposite direction. After all, the Ukrainian-Russian conflict persists, relations between the Russian Federation and the EU continue to deteriorate, and the further things go, the worse it will only get. And the ECB rate hike is a run for the departing train.
Now the ECB rate hike is practically meaningless.
Of course, this point of view is not entirely correct. Of course, an increase in the ECB rate will harm the European economy, which already does not show high growth rates. It will also affect inflation, but how and when? Was it even worth waiting for inflation to rise to 9%, only to start raising the rate? We understand that the ECB considered the rising inflation to be "temporary" for a long time, and Christine Lagarde hoped that inflation would begin to slow down by itself. But, as we can see, this did not happen. The Fed understood better than anyone what it was dealing with and did not forget that pandemic-era stimulus programs largely provoked inflation. Naturally, if trillions of dollars or euros are poured into the economy with a constant amount of goods and services produced, then prices will rise. Now European officials have an excellent excuse for their own mistakes. Yes, they saved the economy during the pandemic, but they overslept the moment when it was necessary to tighten monetary policy. Now, the conflict in Ukraine, the logistics chains disrupted after the pandemic, and sanctions, along with rising energy prices, are to blame for everything. It can be said that European officials even benefit from the conflict in Ukraine, as it covers up their own mistakes.
However, over the past few weeks, reports have begun that the ECB may continue to raise the key rate and even increase the pace. We are already talking about an increase of 0.75% in September, 0.5% in October, and 0.25% in December. I want to ask, what is the meaning of these promotions? The rate will rise to 1.5%. This will still not be enough to bring inflation back to 2%, but it will cause damage to the economy that is already on the verge of an "energy recession." It seems that the ECB will continue to do everything so as not to lose the confidence of the European population. If so, Europe may again plunge into a serious crisis, the way out of which will take decades, not years, because there will be no more energy carriers in the European Union, and the transition to alternative power sources and "green energy" will take years.
The average volatility of the euro/dollar currency pair over the last five trading days as of September 1 is 107 points and is characterized as "high." Thus, we expect the pair to move today between 0.9951 and 1.0165. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 1.0010
S2 – 0.9949
S3 – 0.9888
Nearest resistance levels:
R1 – 1.0071
R2 – 1.0132
R3 – 1.0193
Trading Recommendations:
The EUR/USD pair continues to trade in a flat or "swing" mode. Thus, now it is possible to trade on the reversal of the Heiken Ashi indicator until the price leaves the 0.9900-1.0072 channel.
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.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.
The 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.