InstaForex

September 16, 2021

Overview of the EUR/USD pair. September 16. The market is confused by the decline in US inflation.

 Technical details: 

Higher linear regression channel: direction - downward. 

Lower linear regression channel: direction - upward.

 Moving average (20; smoothed) - sideways. 

CCI: -37.9904


The EUR/USD currency pair continued to trade in different directions on Wednesday. It cannot be said that it has been trading in this mode for a long time, but this judgment has been true for the last few days. But we can say that the markets were confused by the day before yesterday's report on inflation in the United States. There was nothing extraordinary in this report. Inflation in the US slowed by only 0.1% in August, but immediately after this report, the US dollar fell, and just an hour or two later, it returned to its original positions. But yesterday in the morning, it failed again. And all this with minimal volatility, which is maintained for the euro/dollar pair. In general, if we look at the technical picture without various indicators, we deal with a classic correction against an upward trend. The trend began on August 20, but it is very confusing that the bulls failed to overcome the Murray level of " 6/8 "-1.1902, which is also the last local maximum. In practice, the "double vertex" pattern is very rarely implemented. And even less often, it means that the current trend is over. However, the quotes bounced off the 19th level twice. Therefore, at the moment, we still expect the price to consolidate back above the moving average line and new growth of the pair to the level of 1.1900, which should be overcome on the third or fourth attempt.


From a fundamental point of view, nothing has changed even after the inflation report's publication. By and large, the US economy continues to recover thanks to money from the Fed, which has not yet announced the curtailment of the quantitative stimulus program. Thus, the fundamental global background remains not on the side of the dollar. The European Union also has its QE program, which is called PEPP (+ standard APP). However, its volumes are disproportionately lower. Thus, the money supply in the United States is growing at a higher rate, which affects the exchange rate of the US currency. In a more local plan, nothing changes either. The markets have been waiting for several months for Jerome Powell to announce the specific timing of the completion of QE. However, so far, they have only been able to wait for statements about the need to do this in the near future from his colleagues-members of the monetary committee.


There is also little news in the European Union now. Only a week ago, Christine Lagarde again came to the forefront, from whom there was no news throughout August. She immediately made it clear that the ECB, like other central banks, is thinking about curtailing QE, but it is still too early to do this now. Also, a member of the ECB executive committee, Isabel Schnabel, said that the regulator expects a decrease in inflation in 2022. She also warned the markets against a too "rigid" interpretation of the current inflation values, calling them "temporary." The only change that the ECB made to monetary policy at the last meeting was to reduce the pace of asset purchases under the PEPP program, which should continue to operate until the end of March 2022. In the States, the opposite is true.


Almost everyone is already waiting for the Fed to wind down QE as soon as possible, which is the only chance for the dollar. The only chance is to try at least to form "your trend." Recall that since March 2020, the euro/dollar pair has been inside an upward trend, and in the last nine months, it has been inactive corrected. During these nine months, the pair managed to go down only 600 points or so. Thus, the correction is still weak, but at the same time, it has been very much delayed in time. We also cannot conclude that the entire movement of the pair in 2021 is the beginning of a new, global downward trend. It is because of the weakness of this movement. Thus, only the tightening of the Fed's monetary policy can support the dollar or at least an announcement of readiness to start curtailing incentives, which is not yet available. Therefore, the volatility of the euro/dollar pair may continue to remain very weak (which is visible, based on the illustration below), at least until the Fed meeting, which is scheduled for September 21-22.


From a technical point of view, the "Linear Regression Channels" system indicates the beginning of a new upward trend. The lower channel of linear regression has turned up, and the higher one is turning around. Plus, we remind that traders have not managed to overcome the level of 1.1700, which we have repeatedly called the "target" for the second round of correction in the global plan (24-hour timeframe).


The volatility of the euro/dollar currency pair as of September 16 is 41 points and is characterized as "low." Thus, we expect the pair to move today between the levels of 1.1763 and 1.1845. A reversal of the Heiken Ashi indicator downwards signals a possible resumption of the downward movement.


Nearest support levels: S1 – 1.1780 S2 – 1.1749 S3 – 1.1719 

Nearest resistance levels: R1 – 1.1810 R2 – 1.1841 R3 – 1.1871


Trading recommendations:


The EUR/USD pair is trying to resume the downward trend. Thus, today, we should consider short positions with targets of 1.1780 and 1.1763, which should be kept open until the Heiken Ashi indicator turns up. Purchases of the pair should be opened if the price is fixed again above the moving average with targets of 1.1845 and 1.1871. They should be kept open until the Heiken Ashi indicator turns down.