The EUR/USD currency pair showed very low volatility once again during the second trading day of the week. The price attempted to surpass the moving average line again, but it failed again. Technically, there was a slight consolidation above the moving average, but if you examine the chart closely above, can it be called a "breakout" when it's only 10 points above? Therefore, such movements are not significant or trend-setting. The pair's volatility decreased, averaging 52 points over the last five working days. What can be said when the price moves just 50 points in a day? There is virtually no market movement at the moment.
And other things need to be added. The macroeconomic backdrop has been absent for at least three days now. There is no fundamental backdrop either. With the U.S. inflation report and the ECB meeting looming, the market needs something to rely on for making trading decisions. However, in both cases, predicting what to expect from these events is challenging. In the case of the ECB, it is still unclear whether the regulator plans to pause or continue tightening. It's hard to believe inflation will rise for the second consecutive month, but that's what the forecasts indicate. Consequently, the market has logically hit the pause button and is taking time, preferring to wait for official data.
In the 24-hour timeframe, nothing could change with the current low volatility. The pair remains below the Ichimoku cloud, retaining strong prospects for continuing the downtrend. This scenario we support, but the decline (as before) could be gradual. A correction may start on Wednesday and Thursday since the fundamental backdrop may favor the Euro, not the dollar. However, we are anticipating a new decline in the pair afterward.
We are waiting for an acceleration in U.S. inflation.
The European Union's economy continues to slow down, and inflation remains high, especially in Germany, where it has stayed the same. The situation is far from pleasant. At the same time, the ECB is sending signals about being ready to enter the final stage of tightening, which is not good news for Euro buyers. However, we will only determine the ECB's decision on Thursday, so let's wait.
For now, an equally important U.S. inflation report awaits us today. The challenge with such reports is that interpreting them can take much work. For example, how should we interpret these data if we learn about an acceleration in inflation today but a drop in core inflation? Are they in favor of the dollar or not? Or conversely, if overall inflation weakens but core inflation rises again, what? Perhaps that's why we often see "emotional spikes" during the publication of such statistics, with the pair initially going up, then down, and eventually returning to its original position.
What matters today is whether the Fed has grounds to raise rates in September. Therefore, we should look at August's core and headline inflation figures solely through the lens of the FOMC meeting next week. If the inflation situation unequivocally deteriorates, we will likely consider another tightening of U.S. monetary policy in September highly likely. However, this decision is likely to be made slowly and easily, as a significant number of officials are already opposing further rate hikes. The U.S. economy is again predicted to enter a recession, but this time, it's expected to happen next year. However, a recession is still a recession. If inflation accelerates to 3.6%, as experts forecast, then the past four months would have been in vain. In that case, the Fed needs to implement another tightening, which would be favorable for the U.S. currency and sellers of the pair.
The average volatility of the EUR/USD currency pair over the last five trading days, as of September 13th, is 52 pips and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0695 and 1.0799 on Wednesday. A reversal of the Heiken Ashi indicator to the downside would indicate a possible resumption of the southward movement.
The nearest support levels:
S1 - 1.0742
S2 - 1.0681
S3 - 1.0620
The nearest resistance levels:
R1 - 1.0803
R2 - 1.0864
R3 - 1.0925
Trading recommendations:
The EUR/USD pair maintains a downward trend. Short positions can be considered now with targets at 1.0695 and 1.0681 in case of a price bounce off the moving average line. Long positions can be considered in case of a price consolidation above the moving average (more confidently than at present) with targets at 1.0799 and 1.0864.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, the trend is strong.
The moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction for trading.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which the pair will likely move in the next day based on current volatility indicators.
CCI indicator - its entry into the oversold zone (below -250) or overbought zone (above +250) indicates an approaching trend reversal in the opposite direction.