The EUR/USD currency pair continued to trade relatively weakly in terms of volatility on Tuesday. We draw traders' attention to this indicator almost every day, as we consider it the most important at the moment. Simply put, if the market is not trading and almost stands still, what's the point of opening trades? Moreover, there is no flat at the moment. The pair traded with an increase for about a month, and now it has been declining for two weeks. The euro managed to rise by 350 points (which seems quite significant), but over the past two weeks, it has depreciated by 200 points. However, if we divide 200 points by 10 trading days, we get 20 points per day.
It is also worth noting that the normal volatility for the EUR/USD pair is 70 points per day. If the pair covers such a distance, trading signals appear on both the 4-hour and lower timeframes. Currently, even intraday movements are very weak.
On Tuesday, there were no significant fundamental or macroeconomic events either in the United States or in the European Union. Yes, in Europe, there were regular speeches by members of the monetary committee. In particular, ECB Vice President Luis de Guindos and his colleague Pablo Hernandez de Cos spoke. The former stated that we need to wait some more time before easing monetary policy, as inflation in the service sector is still too high. The latter reported that June is a good time to start easing monetary policy.
We hear such statements almost every day. The general opinion of the ECB's monetary committee can be summarized as follows at the moment: if economic statistics do not deteriorate, rates will begin to fall in June. This does not mean that the ECB will cut rates at every meeting. Nevertheless, the probability of the first easing in June is over 80%.
What does this mean for the euro? Nothing new. We have repeatedly warned that the market is expecting too rapid a transition to easing from both the Fed and the ECB. The market anticipates too many rate cuts, but in reality, neither central bank will rush. It may happen that the Fed will start cutting rates even later than the ECB, which the market refused to believe a month or two ago. Therefore, from our point of view, the US dollar should continue to rise based on the market's mistaken rate expectations. However, given the current volatility, it is extremely difficult to expect a rapid decline or, if we are wrong, an increase.
Today in the United States, the results of the FOMC meeting will be announced, and the maintenance of Jerome Powell's hawkish stance should support the dollar. And there are no grounds for softening this stance - inflation in America is rising again. The question is, how will the market react to this? After all, market makers have nothing stopping them from buying euros again and selling dollars, no matter what rhetoric Jerome Powell shares. If everything is logical and consistent, then we should expect a new drop in the pair practically without options. If there is no logic, then the movement can be anything.
The average volatility of the EUR/USD currency pair over the past 5 trading days as of March 20th is 46 points and is characterized as "low." Thus, we expect the pair to move between the levels of 1.0819 and 1.0911 on Wednesday. The senior linear regression channel is still downward, so the global downward trend is still intact. The oversold condition of the CCI indicator suggests the need for an upward correction, but we still expect a decline in the euro.
Nearest support levels:
S1 – 1.0834
S2 – 1.0803
S3 – 1.0773
Nearest resistance levels:
R1 – 1.0864
R2 – 1.0895
R3 – 1.0925
Trading recommendations:
The EUR/USD pair continues to trade below the moving average line. Therefore, it is possible to remain in short positions, with targets at 1.0819 and 1.0803. If the market finally abandons similar dollar sales, then the US currency may rise only in the near future to the 7th level. And in the perspective of several months - to the level of 1.0200. After a fairly long rise in the pair (which we consider a correction), we see no reason to consider long positions. Even with the price consolidating above the moving average.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, it means the trend is strong.
The moving average line (settings 20.0, smoothed) - determines the short-term trend and direction in which trading should be conducted.
Murray 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) indicates that a trend reversal in the opposite direction is approaching.