On Wednesday, the EUR/USD currency pair continued its downward movement. The movement is what we expected to see. There is no strong and sharp decline, nor is there any growth in the European currency. The quotes slowly slide down, losing 20, 30, and 40 points per day. This happens even on days when the macroeconomic background should help the euro. However, this is not happening, which is logical from our point of view.
Let's recall that the euro has been growing for a long time (almost a whole year), and in the last six months, we have repeatedly questioned why it is growing. We have said many times that the growth of the euro needs to be more logical, not related to the fundamental and macroeconomic background. The EU economy is barely growing, unlike the American one. Inflation in the EU is higher and falls more slowly, while the interest rate is higher at the Fed. So, almost all factors indicate that it should be the dollar that should grow, not the euro. Therefore, the market should adjust the pair's rate to a fair value.
This year, the market could buy the euro based on its expectations of a stronger rate hike by the ECB than the Fed. This was logical at the beginning of the year, as the European regulator started raising rates later and did so more weakly. However, time passes, and the ECB's rate is not even close to the Fed's rate. Time goes on, and the Federal Reserve is still looking to tighten, while in the European Union, talks have already begun about a possible pause in September. So again, there is no reason for the euro to grow, and there has yet to be.
On the 24-hour timeframe, the pair is up against the Senkou Span B line, but the Ichimoku cloud is very thin here, so it should not be difficult to overcome it. We support its overcoming and further decline of the euro.
GDP has grown, but to what end?
Yesterday, the European Union published a report on GDP in the second quarter in the second estimate. As expected, the EU economy grew by 0.3%, but since this is not the first and not the last assessment, there was no market reaction. Moreover, what difference does it make in how much the European economy has grown or fallen if the US dollar has been falling for at least three quarters with very high economic growth rates, unemployment, the labor market, and the Fed's rate? These factors are not trend-forming. However, we already said yesterday that we do not expect a reaction to this report.
The same applies to the industrial production report. It grew by 0.5% every month, but what does that give? The pace of economic growth in the European Union is 0.3%, the highest value for the last three quarters, while in the US, the lowest value for the last four quarters is +2%. The difference, as they say, is obvious. Therefore, the European currency will continue to fall. The market has brought it to illogical heights over the past year, and now justice needs to be restored. And routine reports from the EU or the US should not prevent a decline in the medium term.
The average volatility of the euro/dollar currency pair over the last five trading days as of August 17 is 73 points and is characterized as "medium." Thus, we expect the pair to move between the levels of 1.0805 and 1.0951 on Thursday. A reversal of the Heiken Ashi indicator upwards will indicate a new round of the ascending correction.
Nearest support levels:
S1 – 1.0864
S2 – 1.0803
S3 – 1.0742
Nearest resistance levels:
R1 – 1.0925
R2 – 1.0986
R3 – 1.1047
Trade recommendations:
The EUR/USD pair currently continues a downward trend. You can remain in short positions with targets of 1.0864 and 1.0803 until the Heiken Ashi indicator turns upward. Long positions can be considered if the price is fixed above the moving average with a target of 1.0986.
Explanations of the illustrations:
Linear Regression Channels - help determine the current trend. If both are directed in one direction, then the trend is strong.
Moving Average Line (settings 20.0, smoothed) - determines the short-term trend and direction to trade now.
Murrey Levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which the pair will spend the next day, based on current volatility indicators.
CCI Indicator - its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.