The EUR/USD currency pair continued to trade quite calmly on Wednesday. We warned about this earlier, at the moment, absolutely nothing has changed. This week, the only important event will be the US inflation report, which will be released today. There were no interesting events on Monday, Tuesday, and Wednesday, and no important publications took place. Therefore, the market had nothing to react to. However, in addition, the market needed a rest after the extremely volatile last week, when the euro/dollar pair rose by more than 300 points. It is this "rest" that we are observing this week. There is reason to assume that the market will start trading more actively after today's report on US inflation, but everything will depend on the report itself. If it turns out to be neutral, then it will be difficult to expect a reaction.
Now as for the technical picture. It hasn't changed at all this week either. Since all the movements of the pair were as weak as possible and almost non-trend, the price continues to be located slightly above the moving average line, maintaining an upward trend. However, this does not mean at all that the European currency will continue to rise in price, as it did a week earlier. The whole dilemma now is to understand whether traders are ready to work out every Fed rate hike this year, or are these increases already embedded in the current dollar exchange rate? So far, it is impossible to give an unambiguous answer to this question. Meanwhile, "hawkish" sentiments regarding the key rate are maturing in the European Union.
The ECB is not giving signals, but the markets still believe in tightening.
The European Central Bank and its head Christine Lagarde have repeatedly made it clear that the key rate will not be raised this year. Moreover, Lagarde has repeatedly stated about the weakness of the economy, which cannot stand on its feet without two "crutches" in the form of monetary stimulus and low rates. The last meeting of the European regulator did not give any new information about this. But market participants considered Lagarde's half-hints that the rate could still be raised this year. To be honest, it was very difficult to do this and it is possible that market participants simply saw the information they wanted to see. It is unlikely that Lagarde's words that "monetary policy can be revised if necessary" can be interpreted as a signal to raise the rate. And in any case, even if this is true, a rate hike is unlikely to happen before the last quarter of 2022. It is simply impossible to imagine that the market will now work out the tightening of the ECB's monetary policy, which will take place no earlier than October-November. But even if this is the case, it was already worked out last week, when Lagarde filed her "half-check".
In the meantime, Lagarde hints, the Fed says in plain text that it will raise the rate at almost every meeting this year. And this is a real fact, not speculation and guesswork. The market gives a 20% probability that the ECB may raise rates once or twice. The market gives an almost 100% probability that the Fed will raise the rate at least 4 times. Thus, this factor alone gives reason to assume that the dollar will become more expensive throughout 2022. As mentioned earlier, only overbought and taking into account the factor of raising rates by traders can play against the dollar. So far, a very important point is the rebound from the Murray level of "4/8" - 1.1475 on the 4-hour timeframe. If this level is overcome, the euro currency may continue to rise in price. Globally, it has grounds for this. If we consider global trends that last for 8-12 years, then the downward trend for the pair was completed several years ago. In this case, the euro will become more expensive in the coming years.
The volatility of the euro/dollar currency pair as of February 10 is 81 points and is characterized as "high". Thus, we expect the pair to move today between the levels of 1.1357 and 1.1519. The reversal of the Heiken Ashi indicator downwards signals a new round of corrective movement.
Nearest support levels:
S1 – 1.1414
S2 – 1.1353
S3 – 1.1292
Nearest resistance levels:
R1 – 1.1475
R2 – 1.1536
R3 – 1.1597
Trading recommendations:
The EUR/USD pair continues to be located above the moving average line. Thus, now you should stay in long positions with targets of 1.1475 and 1.1507 until the Heiken Ashi indicator turns down. Short positions should be opened no earlier than the price-fixing below the moving average line with targets of 1.1357 and 1.1292.
Explanations to the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
