January 12, 2022

Overview of the EUR/USD pair. January 12. Jerome Powell promises to fight inflation.

 The EUR/USD currency pair continued to stay inside the side channel between the levels of 1.1230 and 1.1353 on Tuesday. In principle, the technical picture for the euro/dollar pair does not change from day to day. The flat is saved. Naturally, this state of affairs does not contribute to active trading on the currency pair. If the movements in the flat were "classic", that is, from the lower border of the channel to the upper and back, then at least it would be possible to trade "on the rebound". However, the pair can work out one border five times in a row and not move to another one. In general, the movement is most inconvenient for traders. In flat conditions, not only the Ichimoku indicator behaves strangely. The Heiken Ashi indicator also generates false signals, as it unfolds too often. As for the fundamental background, it affects the pair's movement from time to time, but it is not enough for the pair to leave the channel. A vivid example of this is last Friday when data on the labor market in the United States were published. After the publication of the Nonfarm Payrolls report, the US currency quite reasonably fell by 70 points, but there was only a little sense from this. First, the pair failed to gain a foothold above the channel. Second, on Monday, the US currency rose by the same 70 points, returning to its original position. Most other macroeconomic and fundamental events do not even have such an impact on the pair's movement.


Jerome Powell spoke in the Senate on the occasion of his reappointment.


Yesterday, by the way, could have been quite important in fundamental terms. ECB President Christine Lagarde (for the first time in several weeks) and Fed Chairman Jerome Powell made speeches. Both spoke about inflation and the importance of curbing its growth. The head of the ECB expressed confidence that the European regulator will be able to stop the strong price growth (inflation in the Eurozone rose to 5% y/y), as this is a matter of "confidence in the currency." Jerome Powell was more specific in his remarks and noted that "the Fed will use all available means to prevent high inflation from taking root and at the same time continue to support the American economy and the labor market." Powell also noted that he is well aware that high inflation primarily affects the least protected segments of the population, for whom the cost of essential goods and food matters. "We are determined to achieve our two main goals: price stability and a strong labor market," Jerome said on Tuesday.


What conclusions can be drawn from these two statements? If we recall most of the speeches by Powell and Lagarde at the end of last year, it becomes clear: these words are intended to calm the markets and consumers. Although the Fed has begun the procedure of curtailing the quantitative stimulus program, this does not mean that inflation will begin to decline in January. On the contrary, most experts believe that the consumer price index will continue to grow for several more months, and a steady slowdown can be achieved no earlier than the end of 2022. It may even require waiting for two or three rate hikes, which should cool the economy. But at the same time, Powell spoke of "high rates of economic growth" and that these rates should be maintained. In general, something does not add up here, since any tightening of monetary policy will lead to a slowdown in the economy. Everything is quite complicated about the ECB since it does not show any signs of readiness to tighten monetary policy at all. On the contrary, the ECB openly declares that rates will not be raised in 2022, and we are talking at most about abandoning the emergency PEPP program, but at the same time, the volumes of the standard APP incentive program will be expanded immediately. Thus, the stimulus will continue at least until mid-2022, and rates will remain negative at least until the end of 2022. It is unclear how the ECB is going to deal with rising inflation.


The volatility of the euro/dollar currency pair as of January 12 is 65 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1292 and 1.1422. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement in the limited range of 1.1230 - 1.1353.


Nearest support levels: S1 – 1.1322 S2 – 1.1292 S3 – 1.1261

Nearest resistance levels: R1 – 1.1353 R2 – 1.1383 R3 – 1.1414


Trading recommendations:


The EUR/USD pair continues to be located inside the 1.1230 - 1.1353 channel. Thus, the movement now remains as lateral as possible and inconvenient for trading. It was not possible to gain a foothold above this channel on Tuesday. Therefore, you can still trade only between the borders of the channel far from the most accurate signals.