Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 67.9346
On Wednesday, June 9, the EUR/USD currency pair again traded ultra-calmly. The illustration clearly shows the minimum volatility of the pair from the very beginning of this week. And also the fact that the quotes are almost in one place. On the one hand, this is logical. First, the euro/dollar pair has been in a sideways movement (although there is a minimal downward slope) for more than three weeks. Secondly, in the first three days of this week, there was no single important report (except for the report on GDP in the Eurozone, which was ignored in the usual style of the markets). Third, traders are waiting for data on US inflation and the European Central Bank meeting outcome.
On the other hand, the pair does not move only when there is any news or events. How many cases were there when traders were quite active in trading with an empty calendar of macroeconomic events? In general, now we need to state the fact: the quotes are standing still. And trade based on this fact. Although today, market activity may increase, as it is today, the ECB meeting results will be announced, and US inflation will be published. We said last weekend that we believe that inflation in the US is the most important event this week. The fact is that rising inflation is not just bad for the economy. It devalues the national currency. And the US dollar has been feeling very bad in the last 15 months. Thus, on the one hand, we have the Fed's actions, which continues to pour $ 100-150 billion into the economy every month.
On the other hand, we have the US Treasury, which, guided by government decisions, also pours trillions of dollars into the economy through various stimulus packages. On the third hand, we have rising inflation, which devalues the dollar in America. And if earlier it was about inflation of 2-3%. Then, at the end of May, its value may be fixed in the region of 5%, which causes investors to sound the alarm. In addition, as everyone already knows, the G7 countries have decided to introduce a single global corporate tax, which means that all multinational companies will pay 15% of their profits, regardless of where they do business and where their production is located. Thus, the latest news for investors is unimportant. Therefore, we believe that the US dollar will continue to depreciate in 2021. Too many global factors continue to work against it.
Meanwhile, many well-known economists are beginning to wonder about the consequences for the US dollar of huge cash injections from the government and the Fed in America. Recently, an article was published by financier John Plender called "The end of the dollar era?". The author explains why the US currency may cease to be the world's reserve currency (and the process has already been launched) and draws certain conclusions about what this may mean for the US economy. Also recently, another article by Stanley Druckenmiller called "The Fed is playing with fire" was published, in which the author criticizes the Fed's actions. Druckenmiller says: "At first, the Fed's actions were logical. In an era of record-breaking economic decline, it needed incentives to get off its knees. But the stronger and faster the US economy recovers, the more questions arise for the Fed, as its actions now pose a serious risk. I can't think of a single period in history when monetary and fiscal policy was so out of step with the economic situation. In the long run, the Fed's policies, rising national debt, and huge budget deficits threaten the international status of the US dollar. If they want to risk the dollar's position as a reserve currency, risk the stock market bubble bursting, so be it, but they could at least discuss it." Mr. Plender, in his article, partly agrees with Druckenmiller but notes that the process of withdrawal of the world's central banks from dollar reserves has already been launched. The latest IMF survey shows that the share of central banks' dollar reserves has fallen to 59% - the lowest level in 25 years. Plender also notes an unprecedented phenomenon for the American economy, when investors who have always used the treasury as the most reliable haven for their assets, in 2020-2021, actively fled from this tool, transferring assets to cash. Druckenmiller also recalls that according to the Congressional Budget Office, in 20 years, about 30% of the revenue in the United States budget will be directed exclusively to debt servicing. Thus, the Fed will have no choice but to continue to buy back the debts of the US government while printing hundreds of billions of dollars. To sum up all of the above: foreign investors have been actively selling off US treasuries recently, and central banks are increasingly abandoning dollar reserves, the Fed will have to print money for a very long time, which puts the US dollar's prospects for the coming decades "below the plinth."
Although we did not give such long-term forecasts, in general, we have repeatedly said that the more the money supply in the United States inflates, the more the US currency will become cheaper. As we can see, many US economists themselves hold a similar point of view. It means that the US dollar is still in the risk zone, and at the same time, in the zone of serious risk.
The volatility of the euro/dollar currency pair as of June 10 is 64 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2114 and 1.2242. A reversal of the Heiken Ashi indicator back down will signal a new round of downward movement.
Nearest support levels: S1 – 1.2146 S2 – 1.2085 S3 – 1.2024
Nearest resistance levels: R1 – 1.2207 R2 – 1.2268 R3 – 1.2329
Trading recommendations:
The EUR/USD pair has started a new round of upward movement. Thus, today it is recommended to open new short positions with a target of 1.2114 if the Heiken Ashi indicator turns down. It is recommended to consider buy orders not earlier than a new reversal of the Heiken Ashi indicator to the top with the targets of 1.2207 and 1.2245. The pair continues to be in a flat, which should be considered when opening any positions. We also give recommendations for trading on lower timeframes.
