A new working week begins, and we need to figure out what to expect from it. The most important question is: was the downward movement at the end of last week an accident caused by several factors that coincided in time or is it the beginning of a new, long-term downward trend? We believe that there is a considerable amount of chance in the fall that occurred on Thursday and Friday. No one denies that the macroeconomic statistics from the US on Thursday were strong, but how many such strong statistics have been ignored by traders over the past year? Escalation of the military conflict in the Middle East? The tense state of war in this region has persisted for decades. And there were no other reasons for the growth of the US dollar. We can assume that a new round of technical correction is overdue, but in this case, it should end on Monday or Tuesday. In general, we remain at our initial opinion: in 2021, the US currency will continue to decline in the long term. We have already talked about the main factor that affects the movement of the pair in the last year several times. We continue to believe that the fall in the US dollar over the past 11 months was triggered by a sharp increase in the money supply in the United States. Accordingly, if this process continues (and it will continue almost guaranteed), then the US currency will continue to devalue. Of course, many other potentially important factors affect the movement of the pair. For example, in the European Union, economic stimulus programs may also be increased. We remind you that the notorious recovery fund for 750 billion euros has not even been formed yet, and certainly not distributed. Thus, formally, with the arrival of this money in the economy, the EU money supply can also grow. However, so far, it still seems that it is not as strong as the money supply in the United States.
Since traders have already worked out the American statistics last Thursday, then we should pay more attention to the publication of reports next week. What can I pay attention to? On Monday, the European Union will publish an index of business activity in the manufacturing sector. However, this indicator last month was at a very high value and it is unlikely that it will collapse below the level of 50.0. On Tuesday, the European Union will publish a report on inflation for February, which may still accelerate and reach 1.0% in annual terms. On Thursday, the unemployment rate will be published, which in the European Union is at a fairly high level of 8.3%, but may increase even more. Also on this day, retail sales will be published, which by the end of January may decrease by 1.1%-1.4% compared to January. On Friday, in the European Union, the calendar of macroeconomic events will be empty. Thus, according to forecasts for the next week, statistics from the eurozone may be quite weak. This may lead to a new strengthening of the US currency. However, we believe that the factor of tension in the Middle East will be more important. In the event of new conflicts and new attacks, the anti-risk sentiment in the market may increase even more, which will provoke an increase in demand for the dollar. The approval of a new stimulus package for the US economy is also of great importance. On Saturday, February 27, it became known that the US House of Representatives approved this bill, so now it remains for a small matter - the approval of this project by the Senate, where the formal majority is also in the hands of Democrats. Thus, while a new batch of dollars has not yet poured into the economy, however, in the coming weeks, the dollar may begin to experience a new portion of pressure in connection with this event.
In technical terms, everything looks very strange on a 24-hour timeframe. The fall in the pair's quotes on Thursday and Friday turned out to be too strong. It is unlikely that such a strong downward movement will continue next week. The price remains within the Ichimoku cloud and above the 50.0% Fibonacci level, from which we start our forecasts for the future of the pair. Thus, everything looks like a slightly stronger round of correction than the one that would be quite enough, but the fundamentally technical and fundamental picture for the euro/dollar pair has not changed. Therefore, from our point of view, it is still impractical to talk about changing the global trend to a downward one. The bears may even try to lead the pair to the 50.0% Fibonacci or 61.8% levels in the coming weeks, but even this will not break the 11-month upward trend.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart, of course, shows a change in the trend from ascending to descending. The price is fixed below all the important lines of the Ichimoku indicator. However, after a two-day drop in quotes, we expect to see at least an upward pullback of 50-70 points. After this pullback, the downward movement may resume in the short term. Thus, in the short term, it is recommended to trade down in the near future, but at the same time, it should be remembered that from a fundamental point of view, there are few grounds for further strengthening of the dollar. It should also be remembered that any fundamental hypothesis requires specific technical confirmation.
