The EUR/USD currency pair continued its downward movement on Thursday but paused near the Murray level of "3/8"-1.0925. As a result, there was a minor upward correction for the time being, leading us to conclude that the technical outlook remains unchanged over the past day. The European currency continues its decline, and while it cannot keep falling indefinitely, we do observe occasional upward corrections. We believe that the European currency will continue to depreciate, perhaps with some corrections, but the supporting factors for the euro are diminishing.
As previously mentioned, the euro is losing ground to the US dollar in almost all indicators. The US economy appears stronger and more stable than that of the EU. US inflation has already fallen to 3%, unlike the European consumer price index. With the Federal Reserve's interest rate significantly higher than the ECB's, the US dollar becomes more attractive to traders. Additionally, all macroeconomic statistics from the US appear more convincing than their European counterparts. Furthermore, the dollar has been on a downward trend for 10 consecutive months, while the euro is extremely overbought. Even technical analysis suggests that a correction in the global sense is long overdue.
Consequently, we continue to anticipate a further decline in the euro. Of course, the market may have a different perspective; in Forex trading, nothing can be 100% certain. However, if technical reasons hold little weight and macroeconomic fundamentals are not influential, then why bother paying attention to them, studying them, and analyzing them? In conclusion, considering all parameters, the euro's trajectory should be downward, with no other likely scenarios. The only possible scenario for the euro to experience a new upward trend is inertia-driven buying just for the sake of buying.
Nonfarm Payrolls: Are They Reaching the "Bottom"?
Today, one of the most significant reports will be published: nonfarm payrolls. The forecast stands at 200–210 thousand jobs for July. As mentioned earlier, this value can be considered "normal." Before the "coronavirus" pandemic, this was the average number of jobs created in the US economy per month. After the pandemic, there was a sharp collapse due to lockdowns and restrictions, followed by a robust recovery. Now we are observing a downward trend, which can mislead traders.
It is crucial to understand that the decline in Nonfarm Payrolls is not a decrease but a return to normal values after a strong recovery post-collapse. Creating 200–250 thousand jobs per month is an excellent indicator, and in the past year, the market hasn't seen figures lower than this. Therefore, this figure can serve as a benchmark today. If the Nonfarm Payrolls figure falls below 200 thousand, the dollar may weaken, as it will be perceived as "low." If it lies between 200 and 250 thousand, the reaction will be mixed, with no clear advantage for either the euro or the dollar. If it surpasses 250 thousand, then the US currency may appreciate further, aligning with our expectations.
Additionally, we must note the unemployment report, as many experts dismiss this indicator every month. Currently, the minimum unemployment rate in the last 50 years is 3.4%. The rate is presently at 3.6%, with the Federal Reserve's key rate ranging from 0.25% to 5.5%. We consider this an excellent indicator, and even a new increase of 0.1% would not be alarming. However, given that the dollar has been declining for the past 10-11 months, doubts arise about the market's comprehension of the situation. If the unemployment rate does not rise above 3.7% for July, we do not anticipate a decline in the dollar. Naturally, we need to consider both the unemployment and Nonfarm payroll reports together, as one may surpass expectations while the other falls short.
As of August 4th, the average volatility of the EUR/USD currency pair over the last 5 trading days is 72 points, classified as "average." Consequently, we expect the pair to move between the levels of 1.0880 and 1.1024 on Friday. A downward reversal of the Heiken Ashi indicator will indicate a resumption of the downward trend.
Nearest support levels:
S1 - 1.0925
S2 - 1.0864
S3 - 1.0803
Nearest resistance levels:
R1 - 1.0986
R2 - 1.1047
R3 - 1.1108
Trading recommendations:
The EUR/USD pair remains below the moving average. Currently, traders may consider opening new short positions with target levels set at 1.0880 and 1.0864, if the Heiken Ashi indicator shows a downward reversal. On the other hand, long positions will only be relevant once the price establishes a firm position above the moving average line, aiming for targets at 1.1024 and 1.1047.
Explanations for the charts:
Linear Regression Channels - assist in identifying the prevailing trend. When both channels point in the same direction, it signifies a strong current trend.
Moving Average Line (settings 20.0, smoothed) - identifies short-term trends and the preferred trading direction at present.
Murray Levels - designated levels for potential price movements and corrections.
Volatility Levels (red lines) - indicate the probable price channel within which the pair might 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) suggests an impending trend reversal in the opposite direction.