Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -157.5616
On Thursday, July 22, the EUR/USD currency pair continued to move very sluggishly until the results of the ECB meeting were announced. During the summing up of the meeting and their announcement, the pair began to jump from side to side and eventually began an upward movement. We will consider the results of the ECB meeting below. For now, we want to say that there was very little "hawkish" in the ECB's rhetoric. Nevertheless, the European currency, following the British pound, began to rise in price. And we warned about such a scenario in previous articles. We drew traders' attention that recently, the euro has been very reluctant to become cheaper. And this suggests that the markets are not eager to invest in the dollar and sell off the euro. Thus, we believed that the markets were waiting for a convenient moment, an impulse to start a new wave of purchases of the European currency. In principle, this is what happened yesterday. The rhetoric of the ECB and Christine Lagarde again did not contain any "hawkish notes."
Nevertheless, the European currency rose in price after the meeting and began to fall again. We draw attention to the fact that the euro/dollar pair has almost reached the level of 1.1700, which we called the target within the framework of a new global round of corrective movement, which is best seen on the 24-hour timeframe. Thus, we expected that both the euro and the pound would resume their upward movement in the near future. At the moment, it is still too early to conclude. However, the beginning of new trends in the euro and the pound can be laid even if the euro currency falls a little more in the coming days. The main thing is that the bulls now continue to develop their intermediate success. We also remind you that the fundamental global factor in the form of an infusion of trillions of dollars into the American economy under the QE program has not gone away. It means that the money supply in the country, as well as inflation, continues to increase. Therefore, it is very difficult for the US currency to become more expensive at this time.
Now let's consider the results of the ECB meeting. The European Central Bank very predictably left the key rate unchanged and did not make any adjustments to the volume of the PEPP program. The only thing that the ECB said is that the pace of asset purchases under the PEPP program will remain "much higher than at the beginning of the year." It is a bearish factor for the European currency. The ECB monetary committee also said that key rates would remain at current levels or lower until inflation is stable at 2%. The PEPP program will continue until the end of March 2022 or until the regulator decides that the crisis caused by the "coronavirus" has been left behind and no longer has a devastating impact on the economy. Reinvestment of payments on securities that were purchased under the PEPP program will continue at least until the end of 2023. The APP asset purchase program will continue for a long time after the regulator starts raising rates. Christine Lagarde said at a press conference that economic activity should return to the pre-pandemic level by the first quarter of 2022. According to her, the ECB expects that inflation will continue to accelerate in the coming months. The increase in consumer prices will be caused by high energy prices and the "low base" of last year. By the beginning of 2022, the influence of temporary factors is likely to end.
Now let's analyze everything said by Christine Lagarde and the ECB. First, the regulator expects that inflation will continue to grow. However, unlike the British and American inflation, which continue to grow, the European one is more in one place. Recall that at the end of June, the CPI in the Eurozone did not change. Thus, we have great doubts that inflation will continue to grow until the end of the year. Even if it rises to a conditional 2.5% y/y and then begins to slow down, as the ECB expects, this means that it is highly likely that it will go back below 2%. The target level will still not be reached. If the target level is not reached, the ECB will have no reason to tighten monetary policy and end the PEPP program. Thus, the main conclusion that can be drawn after the July meeting of the European regulator is that nothing will change for the better in the coming months. Consequently, the rhetoric of the ECB and its head can continue to be characterized as "dovish." Therefore, it would be much more logical to see the continuation of the fall of the European currency. But, most likely, technical factors have become more active, which will now push the pair up. By and large, the regulator did not tell the markets anything new. He also claims that the economy has not yet recovered sufficiently after the crisis and will wait for inflation to rise. When the inflation target is reached, it will be possible to start discussing the completion of the stimulus program and raising rates. And no one knows when this will happen.
Based on this, we believe that the European currency will begin to rise in price in the near future. In the 4-hour timeframe, it is visible that the downward movement has only slowed down recently. At one time, the upward trend of bitcoin slowed down in the same way, after which the collapse began. Approximately the same thing has happened with the euro currency in recent weeks. It was clear that the markets were not eager to sell the pair. It means that they are waiting for a convenient moment for their purchases. Thus, a confident consolidation of quotes above the moving average line will allow traders to consider long positions and count on a new upward trend.
The volatility of the euro/dollar currency pair as of July 23 is 53 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1709 and 1.1815. A reversal of the Heiken Ashi indicator upwards will signal a new round of corrective movement.
Nearest support levels: S1 – 1.1719 S2 – 1.1658 S3 – 1.1597
Nearest resistance levels: R1 – 1.1780 R2 – 1.1841 R3 – 1.1902
Trading recommendations:
The EUR/USD pair again corrected to the moving average and rebounded from it again. Thus, new short positions with targets of 1.1719 and 1.1709 are possible today before the Heiken Ashi indicator turns up. Purchases of the pair will be potential no earlier than the price-fixing above the moving average line with targets of 1.1841 and 1.1902.
