Review of EUR/USD on August 28; The Market Continues to "Strip" Retail Traders

On Tuesday, the EUR/USD pair continued to trade near its 18-month highs. However, it's more accurate to say that the euro continued to appreciate. Yes, there were no new local price records yesterday, but the pair also failed to show any significant downward correction. We had a day when the euro did not demonstrate a new phase of illogical growth. However, it may show such a phase today.

The longer the euro rises while the dollar falls, the more evidence we get that we are right. Recall that in the first half of 2024, we repeatedly pointed out the illogical nature of the euro's rise or lack of decline. In other words, the euro rose much more frequently than fundamentals and macroeconomics suggest. All this ended with the euro soaring at the beginning of the second half of the year. We have often discussed that the European economy is much weaker than the American one, and the European Central Bank, unlike the Federal Reserve, had already started easing monetary policy, which was initially "softer" by 1%. Yet, all these factors are ignored.

Unfortunately, it is better to make money on the market than to be right. However, we also want to remind you that there have always been, and will always be, major players and market makers with entire analytical departments and special algorithms for trading. In other words, they use their ability to move prices in the desired direction through massive volumes. Naturally, they take advantage of this. Meanwhile, ordinary traders observe such movements, which are difficult to describe or explain even in hindsight, and are satisfied with explanations like "the market is experiencing increased risk sentiment."

We continue to believe that the euro is not only overbought (as indicated by the CCI indicator for several weeks now) but also unreasonably expensive. The longer the euro rises, the more confident we are that a similarly substantial decline will follow. One should only ask what will happen when the Fed starts to lower the rate, given that the market has already been anticipating this event for two years. What will traders expect when the Fed begins monetary easing? That's right – a decline in the US dollar. The US dollar will rise actively at that moment because the market has already factored in the entire Fed rate-cutting cycle.

Of course, this is just a hypothesis, but it looks more and more convincing every day. Ordinary traders who start selling the dollar when the Fed starts to lower the rate will be just as confused about why the dollar is rising as they are now about why the dollar is falling. This is because the market (major players) anticipates all significant events in advance. It is simply impossible to predict in real-time what level the dollar will fall if the Fed has yet to start easing. For instance, we did not expect the pair to rise above the 10th level. As you can see, in recent weeks, neither technical indicators nor the macroeconomic backdrop functioned properly. The US dollar is undergoing a typical decline.

The average volatility of EUR/USD over the past five trading days as of August 28 is 64 pips, which is considered average. We expect the pair to move between the levels of 1.1100 and 1.1228 on Wednesday. The upper channel of the linear regression is directed upwards, but the global downward trend remains intact. The CCI indicator entered the overbought area three times, signaling a potential shift to a downtrend and highlighting how the current rise is illogical.

The EUR/USD pair continues its strong and relentless upward movement due to the market's desire to constantly buy euros and sell dollars. In previous reviews, we mentioned that we only expect declines from the euro in the medium term, but the current rise now seems almost like a mockery. However, it would be foolish to deny that the price is in an upward movement, and there are no signs of its end yet. The market continues to seize every opportunity to buy, but the technical picture warns of a high probability of the uptrend ending. Short positions can be considered after the pair consolidates below the moving average, with targets at 1.1047 and 1.0986.

Regression Channels: help determine the current trend. If both are directed in the same direction, it means the trend is strong at the moment.

Moving Average Line (settings 20,0, smoothed): defines 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 probable price channel in which the pair will spend the next 24 hours, based on current volatility indicators.

CCI Indicator: Entering the oversold area (below -250) or the overbought area (above +250) means a trend reversal in the opposite direction is approaching.