The EUR/USD currency pair continued to trade in the key of Friday on Monday. We warned that the pair could continue to move quite volatile on the first trading day of the week because the last three days of last week were just crazy in terms of the fundamental and macroeconomic background. However, we did not expect that the growth of the European currency would continue. As we have already said, the rise of the euro and the fall of the dollar on Friday are illogical. Naturally, it is always possible to find a way to explain why the market traded exactly the way it traded. But we believe that it is necessary to build on specific statistical data, specific statements by top officials, and specific decisions taken by central banks.
For example, Jerome Powell said last week that in the near future the issue of softening the aggressive monetary approach will be discussed. But when exactly will it begin to be discussed? In a week, in two, or a few months? After all, the answer to this question depends on when the rate will begin to slow down in its growth. And this, in turn, depends on the dynamics of the US dollar and the actions of the market. Therefore, we do not like vague statements that can be interpreted as anyone wants. The Fed's rate rose by 0.75% for the fourth time in a row – this is a concrete fact that reflects the mood of the regulator at this time. Nonfarm Payrolls exceeded the forecast value – and this is a concrete fact that testifies to the remarkable state of the labor market in the United States. Although unemployment has increased to 3.7%, who said that by the end of next month it will not decrease by 0.2%, as it was a couple of months ago?
Thus, we believe that the fall of the dollar is illogical and could only happen for technical reasons. And there are also a few technical reasons for the euro currency to grow "happily ever after" now. The pair continues to "walk through the torments" near the Senkou Span B line on a 24-hour TF. There was no clear overcoming of this line, and considering how much time the pair spent near it, this line itself declined to a greater extent than the euro currency grew. Euro quotes remain at some 400-500 points from their 20-year lows, so it is still very difficult to count on the long-term growth of the pair. Especially when there are no strong buy signals.
Christine Lagarde promises to raise rates further.
The end of last week was marked not only by important data from overseas but also by the speech of ECB Head Christine Lagarde. In her speech in Estonia, she stated the paramount importance of inflation. According to her, banks will have to make difficult decisions, but they are necessary for price stability, and changes in the economy have already begun. Gas prices and shortages have caused structural changes that will have consequences for several years. Europe has to buy gas at higher prices, as many supplies are illegally contracted. However, at the same time, the European Union has taken a course toward "green energy," which will lower electricity prices in the future for several years. Lagarde also promised to continue fighting high inflation by raising the ECB's key rate. She said that inflation will not begin to decline by itself, and will not slow down due to a drop in business and economic activity, so the ECB cannot afford to just monitor the situation. These are the main points of Lagarde's speech on Friday.
We would like to note that Lagarde's rhetoric in November is radically different from her statements at the beginning of the year when she said that sooner or later prices themselves will begin to slow down in their growth. Now Lagarde believes that they will not start, and the regulator needs to act harshly and decisively. These words give hope to the European currency for growth, since if the ECB does not deviate from its mandate, the rate will now grow longer than the Fed rate. In other words, the gap between them will now be narrowing. If we assume that earlier the US dollar was growing by leaps and bounds because the Fed rate was growing and the ECB rate was not, then now the opposite situation may be observed. But we still have little faith that the European regulator can bring it to 5% or so.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of November 8 is 141 points and is characterized as "high." Thus, we expect the pair to move between 0.9855 and 1.0140 levels on Tuesday. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 0.9888
S2 – 0.9766
S3 – 0.9644
Nearest resistance levels:
R1 – 1.0010
R2 – 1.0132
R3 – 1.0254
Trading Recommendations:
The EUR/USD pair has consolidated back above the moving average. Thus, now you should stay in long positions with targets of 1.0010 and 1.0132 until the Heiken Ashi indicator turns down. Sales will become relevant again no earlier than the price fixing below the moving average line with a target of 0.9766.
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.
The 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.