July 5, 2021

Overview of the EUR/USD pair. July 5. Strong NonFarm provoked the fall of the US currency.

 Technical details: 

Higher linear regression channel: direction - sideways. 

Lower linear regression channel: direction - downward. 

Moving average (20; smoothed) - downward. 

CCI: -50.7229

On Friday, July 2, the EUR/USD currency pair continued to trade very calmly. Moreover, even at the American trading session, when several important macroeconomic reports were published. In total, 68 points were passed during the day, which is the average value for the euro/dollar pair. Therefore, we note that the volatility was very low, as for such an important macroeconomic background, and the market reaction was exactly the opposite of what it should have been. It should be noted right away that what happened on Friday can be interpreted in different ways. It can be explained in five different ways. However, this will be discussed a little later. In the meantime, it should be noted that after Friday, the technical picture on the 4-hour timeframe has not changed at all. The downward trend is still maintained, and the dollar has a good chance of rising to the 17th level. Recall that these reasons lie in technical factors on the 24-hour timeframe, where the picture looks as if another round of corrective movement within the global upward trend is necessary. And the level of 1.1700 is just the previous local minimum, to which the price can strive. However, we can not say that the fundamental and macroeconomic backgrounds are in favor of the US currency. From time to time, important and strong statistics come from overseas. However, it is not because the US dollar has risen by several cents in recent weeks.

Two key reports were published last Friday in the United States. Recall that earlier, on Wednesday, a fairly strong ADP report was released in America. However, ADP and Nonfarm Payrolls reports rarely correlate with each other. Thus, the strength of the first does not guarantee the strength of the second at all. However, NonFarm Payrolls turned out to be really on top and better than experts predicted. In June, 850 thousand jobs were created outside the agricultural sector, which is 125 thousand more than the forecast. However, the US currency was unable to continue its growth. Why not? In parallel with this report, the US unemployment rate for June was also published, according to which there was an increase in the indicator from 5.8% to 5.9%, with a forecast of 5.6%. It is a very subtle point that should be considered in detail. First, although the unemployment report is very important, it rarely causes a strong reaction from traders. Secondly, it is not the unemployment itself that is important for the American economy, but the state of the labor market. Thus, the Nonfarm Payrolls report is simply more important. Third, an increase in unemployment by 0.1% is not so critical as to ignore the NonFarm report. It should also be recalled that the reasons for the strengthening of the US currency recently are more technical, and most of the downward movement occurred at all when the results of the Fed meeting were summed up. Accordingly, last Friday, there could be a change in the general mood of the markets. After all, even with such unemployment, the US dollar should have continued to rise in price, but this did not happen. And in reality, this could happen because traders stop looking in the direction of the US currency, and not because unemployment turned out to be weak. If so, then on Monday-Tuesday, the euro/dollar pair may attempt to overcome the moving average line. Recall that any fundamental hypothesis requires technical confirmation, so it does not make sense to consider long positions before overcoming the moving average in any case. Nevertheless, now a period begins when the pair's upward reversal should be expected. It may happen next week when the price still reaches the level of 1.1700. However, there are real reasons to expect the end of the fall of the currency pair.

It should also be recalled that the global factors that continue to influence the euro/dollar pair remain the same and relevant. It means that the US currency is still under pressure from these factors. And on the 24-hour timeframe, both major currency pairs continue to be within the framework of upward trends. Therefore, a reversal to the top and the resumption of the upward movement in the near future is a very likely development of events.

Also on Friday, another speech by ECB President Christine Lagarde took place. This time, the head of the ECB noted that the European economy is beginning to recover from the pandemic crisis. However, this recovery remains "very fragile". Christine Lagarde once again noted that the monetary stimulus measures under the PEPP program will be maintained at least until March 2022 or until the ECB decides that the phase of the fight against coronavirus is completed. Thus, we can conclude that Lagarde's rhetoric has not changed in any way. Just last week, she spoke several times, and we have already noted that it is unlikely that we should expect new information from her or Powell every time. Thus, Lagarde's speech on Friday did not affect the movement of the currency pair at all. And if so, then only the American statistics and the reaction of traders to it mattered. By the way, another important factor that speaks in favor of an upward reversal of the pair is the CCI indicator, which has recently entered the oversold area three times (below -250) and each of its subsequent lows is higher than the previous one. Unlike the price, where each subsequent minimum is lower than the previous one. It is called divergence. We usually don't use it and don't pay attention to it, but now it catches the eye.

The volatility of the euro/dollar currency pair as of July 5 is 55 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1808 and 1.1918. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.

Nearest support levels: S1 – 1.1841 S2 – 1.1780 S3 – 1.1719 

Nearest resistance levels: R1 – 1.1902 R2 – 1.1963 R3 – 1.2024

Trading recommendations:

The EUR/USD pair has started a new round of corrective movement, which may develop into an upward movement. Thus, today it is recommended to open new short positions with targets of 1.1808 and 1.1780 after the Heiken Ashi indicator turns down or in the case of a price rebound from the moving average. It is recommended to open buy orders now no earlier than fixing the price above the moving average line with targets of 1.1918 and 1.1963.