Investors continue to give preference to protective gold, yen, and dollar, while the world's major stock indexes continue to decline. There are no signs of an easing in the Russian-Ukrainian conflict, so the likelihood of economic problems and more prolonged inflationary pressure is growing. Meanwhile, European currencies continue to decline against the dollar.
As the Federal Statistics Office reported Tuesday, annual inflation in Germany accelerated to 5.1% in February, and economists predict that annual inflation in March will exceed 5.5%. Russia's military operation on the territory of Ukraine has led to a further increase in oil and natural gas prices, but this is not yet reflected in the February inflation data.
Philip Lane, chief economist of the European Central Bank, said last Friday that the military conflict in Ukraine could reduce eurozone GDP by 0.3%-0.4%. Under the worst-case scenario, GDP will shrink by almost 1%. Also, in his opinion, a significant increase in the inflation forecast for 2022 is possible.
EUR/USD may receive support if the Fed, against the backdrop of ongoing events, raises the rate more slowly than the market currently expects. At the same time, the first increase in the ECB interest rate is now not expected before 2023, while December of this year was previously planned. And much in the dynamics of the euro will also be due to information about the crisis in Ukraine.
Thus, a further decline in EUR/USD is most likely, and in the event of a breakthrough of the local support level of 1.1000, the target becomes the lower line of the downward channel on the weekly EUR/USD chart and the mark of 1.0900.
From the news for today, market participants will pay attention to the publication of consumer price indices (CPI) for the eurozone (10:00 GMT), the ADP report on the level of employment in the U.S. private sector for February (13:15 GMT), and the speech of U.S. Fed Chair Jerome Powell in Congress (15:00 GMT). Investors want to hear Powell's opinion on the Fed's plans for this year. Any hints from Powell about the possibility of changing the current monetary policy will cause an increase in volatility in dollar quotes and in the U.S. stock market.
As for the ADP report on the level of employment in the private sector, its publication usually has a strong impact on the market and dollar quotes. An increase in the value of this indicator has a positive effect on the dollar. U.S. private sector employment growth is expected to be +388,000 in February (vs. a -301,000 drop in January 2022, an increase of 807,000 in December, 534,000 in November, 571,000 in October, 568,000 in September, 374,000 in August, 330,000 in July, 692,000 in June, 978,000 in May, 742,000 in April, 517,000 in March, 117,000 in February, 174,000 in January 2021).
This is a very strong indicator, which gives reason to hope for an equally strong official report of the U.S. Department of Labor, which will be presented on Friday (13:30 GMT). Although the ADP report does not directly correlate with official data from the U.S. Department of Labor on the labor market, however, it is often a harbinger of them, having a noticeable impact on the market. The market reaction may be negative, and the dollar may decline if the data turns out to be worse than the forecast. However, this impact is likely to be short-term. The Fed is determined to tighten its monetary policy. The question is the pace of tightening and the scale of this process.
At the end of the January meeting, Fed leaders confirmed the decision to accelerate the reduction in asset purchases in order to complete the QE program in March 2022 and begin raising interest rates. The divergent divergence of the trajectories of the Fed's monetary policy compared to the monetary policies of other major world central banks will become one of the determining factors in the dynamics of the dollar, contributing to its further strengthening, while the ECB continues to maintain a soft monetary policy, and also continues the quantitative easing program.
Technical analysis and trading recommendations
After yesterday's sharp fall, EUR/USD continues to decline today, developing a downward trend towards the lower border of the downward channel on the weekly chart and the level of 1.0900.
At the time of writing, EUR/USD is trading near 1.1100, in the zone of almost 2-year lows, below key resistance levels 1.1575 (200 EMA on the weekly chart), 1.1525 (200 EMA on the daily chart).
Technical indicators OsMA and Stochastic on the 4-hour, daily, weekly charts also recommend short positions.
The targets for further decline are the local support levels of 1.1000, 1.0900, 1.0700.
In an alternative scenario, the first signal for buying may be a breakdown of the local resistance level 1.1135, and a confirming one – a breakdown of the important short-term resistance level 1.1235 (200 EMA on the 1-hour chart) with the aim of corrective growth towards the resistance level 1.1305 (200 EMA on the 4-hour chart, 50 EMA on daily chart).
However, in the current situation, against the background of fundamental data of the situation in Ukraine and in our main scenario, short positions remain preferable.
Only a breakdown of the long-term resistance level 1.1575 (200 EMA on the weekly chart) can return EUR/USD to the long-term bull market zone with the prospect of growth to resistance levels 1.1780 (38.2% Fibonacci level of the upward correction in the wave of the pair's decline from the level of 1.3870, which began in May 2014, to the level of 1.0500), 1.2060 (200 EMA on the monthly chart).
Support levels: 1.1050, 1.1000, 1.0900, 1.0700
Resistance levels: 1.1135, 1.1235, 1.1305, 1.1400, 1.1470, 1.1525, 1.1575
Trading Recommendations
EUR/USD: Sell by-market, Sell Stop 1.1150. Stop-Loss 1.1140. Take-Profit 1.1000, 1.0900, 1.0700
Buy Stop 1.1140. Stop-Loss 1.1150. Take-Profit 1.1200, 1.1235, 1.1305, 1.1400, 1.1470, 1.1525, 1.1575
