The EUR/USD currency pair tried once again to resume its downward movement on Thursday, but with the same success as the previous days. The moving average line has not been overcome, so the correction trend still persists. It will persist even if the moving average is surpassed because, over the last 5 weeks, we have repeatedly observed a similar phenomenon, which did not always lead to the formation of a new short-term trend. Thus, we still advocate for a new prolonged decline in the pair, but it may be slow, gradual, and not strong. Already now, we see that although the pair is not standing still, its volatility leaves much to be desired. It is not negligible, but 50–60 points per day are very little to count on a good profit.
Most technical patterns and indicators indicate a fall in the near future. Let's start with the fact that in almost a month and a half of correction, the euro managed to correct by only 300 points. This is not much. There are still no particularly strong growth factors for the euro. While the Fed is open to contemplating a new tightening of monetary policy and stands prepared to respond to increasing inflation in the USA, the ECB appears to be less inclined in that direction. We would say this: the probability of tightening in the ECB is currently about 10%, while the Fed is about 20–30%. The difference is not significant, but this is not the only factor in the possible strengthening of the American currency. The CCI indicator twice entered the overbought zone during the correction. This means that the downward trend may and should be resumed. And the resumption of the trend means that the price should at least fall to the level of 1.0468. This is where we expect to see the price in the coming weeks.
Undoubtedly, any forecast can be adjusted. In the last 3–4 years, there has been a trend of global catastrophes and military conflicts around the world, so one can never be sure of anything. As long as the dollar has the necessary fundamental background to continue strengthening. In a month, everything can change.
Jerome Powell does not "close the doors." Yesterday, Powell's second speech of the week took place. This time, the head of the Fed stated that he is not sure of reaching the inflation target at the current level of the key rate. "We acknowledge progress in fighting inflation, but our actions may still be insufficient to reduce inflation to the target," said Mr. Powell. At the same time, he announced that the central bank will act more cautiously in the future, as it is currently very difficult to make a mistake with a "too low or too high value of the rate." The range of the optimal rate has narrowed, and any careless action will cause more harm than good. Powell also added that the Fed is currently not relying on the yield of Treasury bonds when making decisions.
Along with him, the head of the Philadelphia Fed, Patrick Harker, also spoke, who is often quite frank. Harker stated that it is now most important to closely monitor statistics and avoid making the wrong decisions. The fact that the Fed will maintain a high rate for a long time is an obvious fact. Mr. Harker also did not say a word that it is no longer necessary to tighten monetary policy. "The labor market is becoming more balanced; the unemployment rate may rise to 4.5% next year, inflation will decrease to 3% in the near future, and then return to 2%," the official said.
Thus, Harker and Powell confirmed our conclusion about the likelihood of a rate hike. The Fed is ready to intervene if necessary but will do so only in an extreme case. These statements were not a surprise to the market, and the dollar moderately strengthened. We believe that its prospects remain favorable.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of November 10 is 71 points and is characterized as "average." Thus, we expect movement between the levels of 1.0600 and 1.0742 on Friday. The reversal of the Heiken Ashi indicator downward indicates a new attempt to resume the downward trend.
Next support levels:
S1 – 1.0651
S2 – 1.0620
S3 – 1.0590
Nearest resistance levels:
R1 – 1.0681
R2 – 1.0712
R3 – 1.0742
Trading recommendations:
The EUR/USD pair continues to change its direction almost every day. Therefore, relying on the moving average at this time is a futile endeavor. Last Friday, we saw a strong upward movement, but it is unlikely that the upward trend will continue. The rise was solely due to a strong background, which is not common. We believe that from the current positions, it is advisable to consider selling, but it should be understood that the "swings" may continue. Friday did not fundamentally change the nature of the pair's movement.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it means the trend is currently strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel in which the pair will move in the next day, based on current volatility indicators.
CCI indicator – its entry into the oversold zone (below -250) or the overbought zone (above +250) indicates that a trend reversal in the opposite direction is approaching.