The EUR/USD currency pair continued a moderately upward movement for most of the day. As the illustration below shows, the pair generally maintains a relatively "average" level of volatility, so there is no talk of any strong movement. The European currency continues to correct after a month-long decline, which is logical. In the medium term, we continue to expect a resumption of the downward movement, as we do not see sufficient grounds for the euro to resume an upward trend.
Yesterday evening, the results of the Federal Reserve's meeting were announced, but as usual, we will not analyze them immediately. The market needs to fully digest the information, as apart from the rate decision, there was also a press conference with Powell. The head of the Fed only sometimes makes accurate statements. Market hints can be initially misinterpreted and then change their attitude towards them. Generally, at least 18 hours should pass from this event to draw conclusions.
As for other fundamental events, yesterday, the report on industrial production was published in the European Union, which predictably turned out to be worse than the forecasts that predicted growth of 0.8-1.9% monthly. Industrial production increased by 1%, which is also very good. However, the euro did not pay any attention to this report, which is unsurprising, as it does not fall into the "important" reports category.
Despite consolidating below the Ichimoku cloud in the 24-hour timeframe, the European currency again shows a desire to grow, although there are still no grounds for it. Even if the Fed did raise the rate for the last time, the ECB is also close to that moment. And it isn't easy to imagine that the ECB will raise the rate to 5% or 5.5%. It is also difficult to imagine that the market has not priced these rate hikes.
There is no point in expecting surprises from the ECB
With a 90% probability, the key rate of the European Central Bank will increase by 0.25% today. This will be the second consecutive increase of 0.25% after the regulator slowed the tightening pace to a minimum. Since we expect three 0.25% increases, the regulator may complete its cycle of monetary policy tightening in July, reaching 4.25%. This figure should be clear to traders. We know this is a sufficiently "moderate restrictive level" that does not imply a rapid decline in inflation. However, we have repeatedly said that the ECB is not one country's central bank but 27. It must take into account the interests and economic situation of all. Inflation is already approaching 2%; somewhere, it is far from it. Economically weak countries may not withstand a 5% rate and will later require stimulus measures to revive their economy.
In 2008, during the mortgage crisis, the ECB rate rose to 4.25%, which is very symbolic and gives us a clear benchmark. At the same time, the Fed rate rose to 5.25% and the Bank of England rate to 5.75%. Doesn't it resemble the current situation? The only difference is that the Bank of England now has much less room to tighten its policy, as it is no longer part of the EU, and in the past 5-6 years, the UK economy has been "tossed" in all directions.
The above factors are sufficient to be confident in the final value of the ECB rate. And once again, we do not believe that the market has not yet priced in the last two tightenings. And if it has, then there are no grounds for the euro to show growth. Of course, the market can buy the euro without any grounds, which also happens, but in this case, the fundamental background can be completely disregarded. What does it matter what it says if the pair is only going up? We are currently counting on a correction, which should end soon.
The average volatility of the euro/dollar currency pair for the last five trading days as of June 15th is 72 pips, characterized as "average." Thus, we expect the pair to move between the levels of 1.0788 and 1.0932 on Thursday. A reversal of the Heiken Ashi indicator back down will indicate the beginning of a downward correction.
Nearest support levels:
S1 - 1.0803
S2 - 1.0742
S3 - 1.0681
Nearest resistance levels:
R1 - 1.0864
R2 - 1.0925
R3 - 1.0986
Trading recommendations:
The EUR/USD pair continues to stay above the moving average line. It is advisable to remain in long positions with targets at 1.0925 and 1.0932 until the Heiken Ashi indicator reverses downwards. Short positions will become relevant again only after the price firmly falls below the moving average line, with targets at 1.0742 and 1.0681.
Explanation of illustrations:
Linear regression channels - help determine the current trend. The trend is currently strong if both channels are directed in the same direction.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and direction in which trading should be conducted.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - probable price channel in which the pair is expected to trade in the next 24 hours, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) indicates an upcoming trend reversal in the opposite direction.