On Thursday, the currency pair EUR/USD failed to start a downward correction. Thus, after the "inflationary Tuesday," two days have already passed, but we have not seen any hint of a downward pullback. It is worth reminding ourselves that all the current upward movement, which has lasted for a month and a half, is a correction against a stronger and earlier drop of the pair. Therefore, we expect the completion of this correction and the resumption of the medium-term downward trend. Unfortunately, not every movement starts on schedule. The market has always had periods of flat, correction, or consolidation. And they can take almost any amount of time. So, if any trader is also expecting a resumption of the decline, then all that remains is, as banal as it may sound, to wait.
As mentioned, the CCI indicator entered the overbought zone three times. From our point of view, this is a strong sell signal. We must remember when the indicator entered the extreme zone four times in a row. Therefore, we should see at least a noticeable downward correction. Even if the market is not currently set for sales and does not believe in the dollar, we still need to see a pullback in quotes before the short-term upward trend resumes.
In the 24-hour timeframe, the price is still above the Ichimoku cloud, so there are no signals for the resumption of the downward trend. For now, we will have to rely on the 4-hour timeframe. Since we still have an upward trend, buying looks more logical. Remember that we can also be wrong; if a new upward trend is emerging now, it is not advisable to sell the pair. Sales should be made when the corresponding signals appear; for now, there are none.
Today is Friday, which means we can start summing up the week. What interesting things happened this week? In general, we can highlight only the inflation report. And it is not superfluous to remind the market that its reaction to this report needed to be revised. First, this report cannot be called a failure, as inflation is decreasing, which is good for the economy and the Federal Reserve. However, it cannot be called super-optimistic (for the dollar) either, as the faster inflation falls, the less chance there is of seeing new tightening monetary policy. The probability of a rate hike in December or January is now no more than 5%. If we analyze its value, we need to understand what caused such a furor in the market. Inflation fell to 3.2% with a forecast of 3.3%, and core inflation dropped to 4.0% with a forecast of 4.1%. Deviations were minimal, but the dollar lost 200 points in hours.
Thus, there are two possible scenarios. Either the market is set for buying now, so it just waited for a reason to go long, or we saw an illogical movement that will be "closed" soon. In our forecasts, we rely on fundamental factors of global scale. Currently, the euro is only 400 points away from its annual highs, which is still very high. This is because the Fed's rate is 1.25% higher than the ECB's rate, and the EU's economy, unlike the US economy, is not growing.
Based on this, the fair value of the euro against the dollar is below current levels by 500-600 points. As we mentioned, this month's US reports made the dollar a "bearish" service, but the statistics should improve sooner or later. The market may be waiting for strong data from across the ocean to resume sales. Therefore, the overall conclusion is: we expect the pair to fall, but until there are corresponding signals, we do not recommend selling it.
The average volatility of the currency pair euro/dollar for the last five trading days as of November 17 is 79 points and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0771 and 1.0929 on Friday. The reversal of the Heiken Ashi indicator downward indicates a possible start 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 has shown a new twist in the upward movement and is above the moving average. Buying should be considered at the moment, but we strongly doubt that the pair's growth will continue, given the triple overbought of the CCI indicator. Selling the euro will become relevant after the price is fixed below the moving average with targets at 1.0681 and 1.0620.
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 in which trading should be conducted.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold zone (below -250) or overbought zone (above +250) indicates that a trend reversal in the opposite direction is approaching.