4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -204.7034
On Thursday, June 17, the EUR/USD currency pair continued its downward movement when the Fed announced the meeting results. Thus, the US currency has received strong market support quite unexpectedly, which may even change the global upward trend (although we still do not believe this). However, it would help if you faced the facts. After the meeting results became known and Jerome Powell made a speech, the US currency rose by about 200 points less than a day. For comparison, over the previous 15 trading days, when the downward movement had already begun, the US dollar managed to show an increase of 140 points. Thus, now we can talk about a change in the markets' mood to "bearish." It remains only to understand the fundamental global factors that have raised the European currency so high and understand what impact they will have in the future and whether they will have it at all?
So, the US dollar strongly strengthened its position after the Fed meeting. What was so important about it that the markets rushed to buy up the US currency? At first glance, nothing special. After all, the key interest rate remained unchanged, as well as the volume of the monthly economic stimulus program ($120 billion). However, the rhetoric of the Fed representatives and their expectations have also changed. First, the forecasts for inflation, unemployment, and GDP for the coming years were raised. The Fed now expects the economy to accelerate by 7% in 2021 and 3.3% in 2022. For unemployment, the forecast for 2021 is now 4.5%, and for 2022 – 3.8%. Inflation is expected to reach 3.4% this year and 2.1% in 2022. Thus, all forecasts were improved compared to the previous ones (if this word applies to inflation).
Secondly, seven of the 18 members of the Fed's monetary committee expect a key rate hike in 2022 and 13 of the 18 - in 2023. Previously, these figures were lower, so the chances of tightening monetary policy next year are growing. Third, Jerome Powell explicitly stated that the economy had made significant progress, so this meeting becomes the starting point for further changes in monetary policy. The first thing that the Fed representatives will discuss is the reduction of the program of monthly repurchase of securities to saturate the economy with liquidity. Thus, although it was not openly stated that the QE program would begin to wind down in the near future, this is the conclusion that traders made after the Fed meeting. Thus, the US central bank may become the first central bank to normalize monetary policy. Naturally, the US dollar could not help but react to this positive news.
And now, as already mentioned above, we will try to understand what awaits the US currency while normalization has not yet begun. After all, by and large, the US dollar rose by 200 points solely on expectations of the normalization of monetary policy. Consequently, its growth may be volatile and not long-term. At the same time, we recognize that market sentiment plays a huge role in the future of any pair. It was seen in the pound/dollar pair, which grew almost without corrections and pullbacks for more than 15 months, although the fundamental background from the UK all this time left much to be desired. It also regularly shows us what the "faith of the market" is and bitcoin, which in principle can not rise or fall in any other way except based on the mood of market participants. Thus, it is possible that now the US dollar will become more expensive for some time. We remind you that this option has never been completely excluded, and we always recommend that you pay attention to the "technique" and look for technical confirmation of any fundamental hypothesis. At this time, both the 4-hour timeframe and the 24-hour timeframe( not to mention the smaller ones) have formed downward trends. Therefore, you should trade based on them.
Another thing is that if not for yesterday's meeting of the Fed, such a strong downward movement and the beginning of a (presumably) new downward trend could not have happened. After all, before that, the euro/dollar pair was trading with minimal volatility and almost in a side channel for a month. Thus, the markets did not consider a strong strengthening of the US currency in their strategies. Otherwise, it would have become more expensive before the Fed meeting. In addition, the fact that the Fed and the US Treasury continue to pour hundreds of billions of dollars into their economy, which provokes its serious acceleration, has not been canceled. Despite the statements of the Fed and Jerome Powell personally, this factor has not gone away at all.
Consequently, the money supply in the United States will continue to inflate. Similarly, high inflation (5% at the end of May), which is much higher than the European one and continues to grow, has not gone away. Although Jerome Powell attributed such a high value of the consumer price index to "temporary factors" and once again tried to calm the markets with the words that inflation will begin to "return to normal and strive for its goal (albeit in the opposite direction) of 2.0%," however, so far it remains very high, which means that it devalues the dollar, much faster than European inflation devalues the euro. Thus, if we take these factors into account, the prospects for the US currency will improve when the Fed moves from words and hints to action. And this will not yet happen soon. Many experts are confident that reducing the stimulus program will begin this fall, but no one is canceling the 6-trillion budget for the 2022 fiscal year. And everyone knows that the US budget is in deficit. Usually, the budget for a year is about $ 2 trillion and is still in deficit. Therefore, there will be about $ 4 trillion in short supply, which will need to be found somewhere. And where to find this money? The Fed will print them anyway.
The volatility of the euro/dollar currency pair as of June 18 is 88 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1828 and 1.2004. The upward reversal of the Heiken Ashi indicator signals a round of upward correction.
Nearest support levels:
S1 – 1.1902
S2 – 1.1841
S3 – 1.1780
Nearest resistance levels:
R1 – 1.1963
R2 – 1.2024
R3 – 1.2085
Trading recommendations:
The EUR/USD pair continues a strong downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1841 and 1.1828 until the Heiken Ashi indicator turns up. Furthermore, it is now recommended to open buy orders no earlier than the price is fixed above the moving average line. In any case, the markets should be given time to calm down after the publication of the results of the Fed meeting.
