4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 78.8971
The EUR/USD currency pair traded very calmly on Monday. However, it did not stand still, which allowed traders to trade it and not wait for the flat to finish. The pair's quotes came close to the previous local high near the level of 1.2175. Since the upward trend continues, the upward movement is likely to continue. In principle, nothing has changed in the technical or fundamental picture of the euro/dollar pair during the first trading day of the week. There were no macroeconomic reports. There was no news from the US political sphere. And in general, gone are the days when the markets tracked the speeches of the US president, and each of his messages could impact any market. Joe Biden rarely speaks publicly and even less often gives out comments. In principle, he does not make provocative statements, does not blame the Fed, does not argue with the Republicans, does not insult journalists and women. In general, a much more boring president than Donald Trump. However, after Donald Trump, Joe Biden still looks like a breath of fresh air. The information space under Trump was occupied only by Trump. The former President of the United States did everything to remain a media personality and constantly flash in the media and periodicals. Now in the White House, "silence on the air." Biden made several statements that he considers China to be the primary opponent of the United States, which implies the continuation of anti-Chinese rhetoric among representatives of the presidential administration and targeted actions against the strengthening of China's position in the international arena. Do not forget that the United States and China have been in a state of a trade war for several years, and no one has canceled most of the duties that continue to operate between the countries. Many believed that under Biden, relations between China and the United States would improve. But so far, in the first few months of the Democrat's presidency, nothing has changed. It seems that it no longer matters who the President is. The point is that America fears China, its economic growth and sees it as its main competitor for many years and decades to come.
In the European Union, meanwhile, as well as in the United States, talk has begun about the possible early curtailment of the PEPP program (an emergency program to counter the pandemic, an analog of the quantitative easing program), since after the jump in inflation in the United States, the same is expected in Europe. The European Union, however, did not inject as many trillions as in America. However, the PEPP program has a size of almost 2 trillion euros. Last year, there was a fiscal stimulus program. This summer, the economic recovery fund will be distributed for 750 billion euros. Thus, we can still talk about three or four trillion euros. Most likely, inflation in the EU will indeed accelerate. However, it will depend on when most of the population in the bloc receives the coronavirus vaccine. In the United States, many residents are already fully vaccinated, so almost all quarantine restrictions are lifted for them. And the more "free people" in the economy, the better and faster the economy recovers. Respectively, people are more willing to spend money. Since vaccination is taking place at a much slower pace in the European Union, we should not expect a jump in inflation yet. However, in 2021, it will still accelerate. The PEPP program is designed to run until the end of March 2022, and the talk now is that the ECB will need to step in if inflation jumps. However, many economists agree that the European economy will return to the pre-crisis growth trajectory for several more years, and inflation will remain below the target value for several years. Thus, even if the surge in inflation happens in 2021, it is unlikely to be strong and long-lasting. Accordingly, it is very unlikely that the ECB will announce a tightening of monetary policy before the Fed. And the Fed is not even going to talk about curtailing the QE program until the end of 2021. However, last week, the deputy chairman of the Federal Reserve, Richard Clarida, said that he was very surprised by the April inflation figures. However, he also noted that the increase in the consumer price index would be temporary. Plus, do not forget that last April was one of the most critical months, so the current inflation rates in the EU and the SSE have a shallow base. And even with such a low base, EU inflation accelerated to just 1.6% in annual terms. Thus, there is no reason for the ECB or the Fed to change the monetary policy parameters in the coming months.
Therefore, nothing is changing for the euro/dollar pair right now. All the factors that led the pair to the highs at the end of 2020 and contributed to the resumption of growth in April-May 2021 remain in effect. It means that we have an upward trend, and we can only count on a downward movement within the framework of corrections or pullbacks. The global correction was already this year (in January-March), so we expect an update of the highs around the level of 1.2350 and further growth of the European currency in the long term. Recall that, from our point of view, the European currency continues to grow based on a single factor: the glut of dollars from the Fed of the American economy and the whole world. When the money supply inflates in just one year by 1.5-2 times (different aggregates have different values), it affects the exchange rate. The European Union also poured several trillion euros into the economy, but this amount is still at least two times less than what was spent in the United States.
The volatility of the euro/dollar currency pair as of May 18 is 62 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2095 and 1.2219. The reversal of the Heiken Ashi indicator downwards signals a possible new round of corrective movement.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading recommendations:
The EUR/USD pair continues a slight upward movement. Thus, today it is recommended to stay in long positions with a target of 1.2207 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders if the pair is fixed below the moving average line with a target of 1.2024.
