On Friday, as it did all last week, the EUR/USD currency pair displayed relatively slow movements. Although there is no trend movement on the 4-hour TF, and volatility cannot be said to be at a minimum right now, the pair's movement over the previous five trading days was far from ideal. Once more, the US dollar could not adjust or even stop moving. Therefore, there is currently no technical justification to sell the pair, as all trend indicators are still pointing upward. However, there are numerous fundamental and macroeconomic explanations.
Many macroeconomic reports from recent weeks have been favorable for the US dollar. The most recent nonfarm payrolls, for instance. But at best, each of them only briefly caused a slight dollar strengthening, which quickly subsided. Reports in favor of the euro had a more lasting impact. For the market, the recent fundamental background has been reduced to the fact that the Fed will start to slow down the pace of tightening monetary policy. The market was uninterested in anything else, which primarily caused the US dollar to decline over the past few weeks or even months. Additionally, given that the downward trend lasted for nearly two years, during which the European currency demonstrated the ability to adjust by a maximum of 400 points, it should be noted that from a technical perspective, the current movement to the north may be a banal correction for a 24-hour TF. It had to end eventually. Possibly right now. As a result, if we examine the "technique," everything makes perfect sense. The development of the European currency raises many questions if we examine its "foundation."
Meetings of the central banks and American inflation.
This week's Fed and ECB meetings will undoubtedly be the most important events. Everything now comes down to the fact that both regulators will raise their rates by 0.5% after weeks of discussions, declarations, speeches, etc. If the Fed's decision was anticipated by the market for some time due to the monetary committee members' discussions over the past two to three weeks about the need to moderate the aggressive mood, then the ECB's decision does not appear to be as clear-cut and logical at this time. Recall that while inflation in the US has been declining for several months in a row, it is still rising in the European Union. Consequently, the ECB lacks a moral justification for slowing the rate of rate increases at this time. But as we already stated, the issue of high inflation (above the target level of 2%) may persist for a long time. Additionally, not all EU nations can withstand 5% or higher rates. The ECB will have to offer them monetary support through various programs, which it has only recently abandoned in favor of tightening monetary policy. In this scenario, they may begin to experience financial difficulties. The European regulator will, therefore, probably adopt a stance that is "somewhere in the middle." He will try to increase the rate, but he won't chase the Fed. In this scenario, inflation will go down, but it's unlikely that it will reach the desired 2% level. Since the situation in the United States is exactly the opposite – the rate will rise as much as necessary, and inflation will inevitably return to 2% – from our perspective, this situation may start to put pressure on the euro once more.
In addition to the ECB meeting, the European Union will publish a report on industrial production for October. On Friday, the business activity indices for manufacturing and services for December will be made public. All three indices are below the "waterline" of 50.0, and the slowing of economic growth results from tightening monetary policy. So there is no point in waiting for these indicators to improve. The euro can continue to rise if the ECB decides to increase the rate by 0.75%. If not, the fall will inevitably occur. It has also been simmering for a while.
As of December 12, the euro/dollar currency pair's average volatility over the previous five trading days was 96 points, which is considered "high." So, on Monday, we anticipate the pair to fluctuate between 1.0444 and 1.0643. The Heiken Ashi indicator's upward reversal indicates that the upward movement has resumed.
Nearest levels of support
S1 – 1.0498
S2 – 1.0376
S3 – 1.0254
Nerarest levels of resistance
R1 – 1.0620
R2 – 1.0742
R3 – 1.0864
Trading Suggestion:
The EUR/USD pair is still moving upward. Therefore, before fixing the price below the moving average, we should consider long positions with targets of 1.0623 and 1.0612. Sales will become relevant if the price is fixed below the moving average line with targets of 1.0444 and 1.0376.
Explanations of the illustrations:
Linear regression channels – help determine the current trend. The trend is strong if both are directed in the same direction.
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.