In all our recent articles, we have said that we expect the euro/dollar pair to try to resume the global upward trend. Even though the factors that are supposedly driving the pair now are not at all obvious to many, however, we continue to insist that the main factor now is the endless monetary injections into the US economy by the Fed and the government of the country. Let us recall once again that in this case, the most banal economic mechanism works. The euro currency remains approximately the same amount as it was (perhaps a small increase of 10-15%), however, the US dollars become 1.5-2 times more. Naturally, the US dollar is declining, and inflation in the country is growing. And in 2021, this process will continue, as the first package of incentives has just begun to be implemented, and the pandemic is receding in the United States, which will contribute to the growth of economic and business activity, and Americans will sooner or later start the $ 1.5 trillion accumulated during the pandemic, and the second package of incentives can be approved by the summer. Thus, the flow of US dollars into the economy should not weaken this year, so we believe that the global upward trend will be resumed. The European currency has been showing growth over the past two weeks. Of course, it can be a correction against a correction. The trouble is that no pair can move smoothly and based only on the "foundation" and "statistics". That is, most of the movements that many analysts and experts try to explain by fundamental factors and events are just technical corrections and pullbacks. Thus, the last 2-week upward movement may just be a pullback. On the other hand, it looks quite solid, and we believe that this is the beginning of a new round of the upward trend, which is based on exactly the factors that we discussed above. After all, if you think about it, what are the reasons for the European currency to grow now? The American economy is accelerating at a very high rate (thanks to endless cash injections), however, the European economy continues to stall. In Europe, the third wave of the pandemic, problems with vaccines, problems with economic growth, problems with the recovery fund, which is not even formed yet. Thus, there are no financial incentives for the countries most affected by the pandemic and there is no recovery. If we take into account only macroeconomics, it becomes clear that it is the US dollar that should grow, the demand for which should also increase, thanks to the desire of investors to invest money in the American economy, in American companies, and the American stock market. By the way, this is exactly what is happening now, as the US stock market continues to grow and update records almost every day. However, as we can see, the US dollar is not growing. And the explanation for this, from our point of view, can only be one: the dollar is influenced by much more global factors than "macroeconomics". Imagine a world where there is only 1 product and there is $ 100. Therefore, the price of a single product is $ 100. Suddenly, you have another $ 200. Now the cost of all products is $ 300. And the product is still one.
Thus, we believe that even if Jerome Powell publicly announces an increase in the key rate next month tomorrow, and then the Fed raises it, this will not reverse the downward trend. Yes, inside the day, there is likely to be a serious strengthening of the US dollar, however, it will not be long-term. Please note: all recent macroeconomic reports from the US have been quite strong. Starting from Nonfarm Payrolls, ending with inflation. However, why is the US currency falling? Jerome Powell has been constantly pointing out in recent speeches how well the economy is recovering, and the rate of vaccination in the United States is one of the highest in the world. But the dollar is falling. Think about it.
Next week, there will be only one event in the European Union that deserves attention. This event is the ECB meeting. However, what can we expect from the European regulator now? There is no talk of curtailing the QE program now. There is nothing to say about raising the rate. Accordingly, the only thing we can expect is a speech by Christine Lagarde. But even in the case of the head of the ECB, what can we expect from her? In her last speech, she compared the European economy to a patient standing on his feet with the help of two crutches. It is obvious that Lagarde's rhetoric is currently pessimistic and is unlikely to change much in the direction of optimism in a week. Thus, from our point of view, the meeting will be a passing one. On Friday, the European Union will also publish business activity indices in the services and manufacturing sectors, to which the markets have not reacted for a long time. If the real values are very different from the forecasts, then traders will be able to count on the movement of 30-40 points within the day, but no more. The main question is: will the service sector be able to return above 50.0 or not? In general, there will be very little interesting information (planned) in Europe next week.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart shows that the upward trend continues, however, the volatility is very low. Even though the pair grew by 95 points during the week, by and large, it was these 95 points that went from the minimum to the maximum. That is, the average daily volatility last week was 40 points. On Friday, in general, the market "died". Nevertheless, it is still recommended to trade for an increase, especially since all indicators now signal the growth of the euro/dollar pair. The nearest target levels are located around 1.2044 and 1.2090.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
