InstaForex

August 27, 2021

Overview of the EUR/USD pair. August 27. A symposium in Jackson Hole.

 Technical details: 

Higher linear regression channel: direction - downward.

 Lower linear regression channel: direction - downward. 

Moving average (20; smoothed) - upward. 

CCI: 55.9587


The EUR/USD currency pair on Thursday gave up all attempts to show at least some movements. Indeed, why try if nothing works anyway? In recent weeks, we have repeatedly touched on the topic of volatility. It is not the most interesting topic. However, what else can we talk about if the euro/dollar pair continues to show daily volatility in the range of 30-50 points? What else can we talk about if we already consider the movement by 40 points as something outstanding? At this time, the trend has changed to an upward one since the price has already spent a couple of days above the moving average line. However, in total, during this time, the price went up about 110 points. Thus, so far, it is very difficult to call this upward movement even a "correction." The last downward trend in size is about 600 points. At any moment, the pair may return below the moving average line, and we will already talk about maintaining the downward trend and reflect on the prospects for the growth of the US currency. The most interesting thing is that this is not a joke because Jerome Powell can stun the markets today. But we will talk about this a little later. In the meantime, we note that both linear regression channels are still directed down, and the upward movement is very weak.


Thus, we should consider trading for an increase. In reality, we need to be ready for the resumption of the downward movement since no one knows what the Fed chairman will talk about today. We also recall that global factors continue to point to the resumption of the global upward trend. The fundamental background does not change for the dollar. The Fed is still pouring hundreds of billions of dollars into its economy, provoking an increase in inflation, as well as inflating the money supply. And technical analysis suggests that the global upward trend continues, and everything that we have seen in the last six months is nothing more than a correction. Thus, we believe that the probability of a new upward movement of at least 500 points is high, but what can we do if the pair passes 40 points a day? And not always, this means an increase of 40 points.


Let's go back to the Jackson Hole symposium. Because it just doesn't make sense to talk about anything else right now. Jerome Powell's speech alone can return the interest of traders in the pair. All the macroeconomic reports of this week were ignored or provoked a reaction of 10-15 points. But does it make sense to expect anything at all from a symposium that will be held in a virtual format, not in Jackson Hole? From our point of view, no. Too much information has been received in recent days, which suggests that the Fed chairman will not force events and will certainly not announce the curtailment of the QE program today.


First, the number of cases of coronavirus continues to grow in the United States. Second, even those people who have been fully vaccinated become infected. Third, recent scientific studies have shown that the effectiveness of vaccines has sharply decreased in countering the "delta strain." Fourth, Anthony Fauci said that many people would need a third ("booster") vaccination. Fifth, it turned out that the effectiveness of protection against the virus decreases over time. All this news suggests that the virus will continue to spread and infect people around the world. And the United States has traditionally been in the first place in the world in terms of the number of diseases and fatal cases.


Thus, there are serious concerns that the economy will slow down again. Therefore, its full recovery will take longer than initially expected. Robert Kaplan, the head of the Federal Reserve Bank of Dallas, has already changed his decision regarding the early reduction of QE. And Jerome Powell has never said that the Fed is ready to curtail stimulus. Thus, there is a 90% probability that Powell will either not touch on the topic of QE today or say that the Fed is taking a wait-and-see position and will wait for a stronger recovery in the economy and the labor market before starting to cancel incentives. What will be the market's reaction to any of Powell's rhetoric? It can be any. No one knows what exactly the head of the Fed will say and how exactly traders will interpret his words. Therefore, you need to be ready for any movements in the foreign exchange market today.


The volatility of the euro/dollar currency pair as of August 27 is 43 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1708 and 1.1794. The upward reversal of the Heiken Ashi indicator signals the resumption of the upward movement.


Nearest support levels: S1 – 1.1749 S2 – 1.1719 S3 – 1.1688 

Nearest resistance levels: R1 – 1.1780 R2 – 1.1810 R3 – 1.1841


Trading recommendations:


The EUR/USD pair continues its weak upward movement. Thus, today, you should stay in long positions (or open new ones) with targets of 1.1780 and 1.1794 after the Heiken Ashi indicator turns up. Sales of the pair will be possible if the pair is fixed back below the moving average line with targets of 1.1708 and 1.1688, and they should be kept open until the Heiken Ashi indicator turns up.