On Monday, despite almost no news and events, the EUR/USD currency pair traded higher. The growth started earlier in the day, earlier than the only event of the day - Christine Lagarde's speech, and it should be observed immediately. As a result, these events cannot affect the mood of the market. And the current mood is definitely "bullish" and does not cause any concern. As we have already stated, the expansion of the euro is entirely justified and logical from a technical point of view. Now, every indicator on TF 4 hours and 24 hours is visible. Therefore, conceptually, there is no issue with the growth of the European currency. When we discuss macroeconomics as fundamental, it becomes a different issue. Since the market trades every day, the pair can develop well without any significant events or publications, as we have already mentioned. However, the euro has been growing rapidly for almost a month, and such sustained expansion has us scratching our heads. What fundamentals are the euro developing?
Remember, in theory, several factors can contribute to the current movement of the couple. For example, we can say that risk sentiment in the market is increasing now, but what does that mean, and why is it increasing? It is very challenging to respond. So, why do traders suddenly start paying attention to risky currencies when the geopolitical situation in the world has not changed in any way during the past month? The fundamentals are the same way. Yes, ECB rates are rising quickly, and starting next month, they may begin to outpace Fed rates in terms of growth. But is this one factor enough for the euro to rise by 750 points in less than a month? It is extremely difficult to refer to macroeconomic statistics as "supporting the euro" at all. The only theoretical support factor is expecting a slowdown in the Fed's rate tightening. How much more will the value of the euro increase based on this factor alone?
As we have mentioned, it makes sense to trade for upside while all indicators are pointing upwards. Any fundamental theory needs specific technical signals to support it. There's no need to try to predict future reversals or moves if there aren't any. The market may close the short positions that have been built up over the past two years.
The ECB is preparing to reduce its balance sheet.
The fundamental background was absent during the first two trading days of the week. Christine Lagarde gave another speech on Monday, but this time she did not offer any new insights into the market. The market has no doubts about his assurance that rates will continue to be an important tool in the fight against high inflation. In other words, as long as EU inflation remains high, ECB rates will rise, which the market does not doubt. Lagarde added that the topic of shrinking the ECB's balance sheet (QT program) will be discussed in December, which should also cause some slowdown in the consumer price index. It's already in the news! Since Lagarde's speech was relatively late on Monday, it had little effect on the euro's rise.
The head of the ECB also stated that although it is unlikely to happen soon, the reduction of the central bank's balance sheet should go smoothly, and rates will eventually fall. The state of the economy, the labor market, wages, and inflation expectations will all be important factors. As you can see, traders continue to have official reasons to buy the euro from a fundamental point of view. However, we believe that the current fundamental background should be strong enough to cause the euro to rise by 750 points in a few weeks.
As of November 29, the average volatility of the euro/dollar currency pair over the previous five trading days was 95 points, considered "high." So, on Tuesday, we expect the pair to fluctuate between the 1.0332 and 1.0521 levels. The Heiken Ashi indicator moves downwards indicating a new phase of corrective movement.
Nearest support level S1 – 1.0376 S2 – 1.0254 S3 – 1.0132
Nearest resistance level R1 – 1.0498 R2 – 1.0620 R3 – 1.0742
Trading Suggestions:
The EUR/USD currency pair is still above the moving average. Therefore, until the Heiken Ashi indicator turns downward, we should maintain a buy position with targets of 1.0498 and 1.0521. Setting the price below the moving average line with targets of 1.0254 and 1.0132 will cause sales to become significant.
