On Friday and Monday, the EUR/USD pair struggled to maintain its position above the moving average line. Thus, the short-term upward trend that has lasted no longer than two weeks persists. Nonetheless, the pair cannot surpass the Murray level of "4/8" (1.0254) to continue its upward momentum. The euro continued its growth last week for essential reasons. The European Central Bank (ECB) increased the interest rate by 0.5% and made it plain that this may not be the last significant monetary policy tightening this year.Nonetheless, the purchasers did not take advantage of the opportunity, and the euro is presently almost the same as it was a week ago. Both regression channels point downward, so if we adopt a long-term stance, we tend to keep a downward trend. As is customary, the euro cannot even demonstrate a real correction at a theoretical level. Yes, the pair has increased 300 points in the past two weeks. But what are 300 points when the overall decline over the past year and a half to two years totals 2300?
There were no reasons for traders to purchase euro money in the future, and there are no reasons today. There are currently very few of them, when it was plausible to declare that there were none a week ago. The ECB did raise the key rate, but what meaningful support for the euro can be discussed when the rate is hiked for the first time in 11 years and by a lesser amount than the Fed raises rates at each meeting? The Federal Reserve is well ahead of the European Central Bank in terms of monetary policy tightening. Thus, the dollar retains the highest growth potential as the currency of a nation whose economy offers significantly more favorable investment conditions than Europe.Consequently, it appears that the outcome will be the same as before. The euro will pretend for some time that it is attempting to grow, and then it will plummet again. Currently, we can discuss 0.9500 as a potential aim.
The state of the economy will be indicated via GDP and inflation data.
This week, there will be almost no macroeconomic figures in the European Union if we are to discuss statistics. All the most intriguing publications are slated to be released on Friday. On the week's final trading day, the first estimate of the second quarter's gross domestic product and July's inflation rate will be released. Predictions show a further surge in European inflation, reaching 9 percent, as expected. However, the GDP projections do not show the possibility of new growth. The European economy will almost end the second quarter with no growth. If the ECB hikes rates at least once more, this modest growth may become negative.
Consequently, we cannot argue that everything is terrible in the European Union since we are not discussing Zimbabwe, but the trend is unquestionably unfavorable. Alternatively, a recession in the United States is a substantial danger. Therefore, we do not believe that the weakening of the European economy is the primary explanation for the euro's weakness.
Christine Lagarde may also give a speech during the week. Such engagements have not yet been added to the calendar of events, but her speeches are not always scheduled for a week or more in advance. As the ECB startled many last week, Lagarde will now garner additional attention. Now, it's evident that traders have a question: was this a one-time action, or is the European regulator beginning to combat rising inflation with more than words? If the second option is selected, Lagarde will be expected to hint at a 0.5% rate hike even at the September meeting, as it makes no sense to raise the rate by less than 0.5%. If such clues are received, the European currency will have an additional motivation to continue increasing a little bit further. But in general, we believe that as long as the Fed continues to boost its interest rates, the dollar will grow. The Fed has already surpassed the ECB by five steps. When the Fed stops hiking interest rates, you can anticipate a more or less significant euro strengthening.
The average volatility of the euro/dollar currency pair over the last five trading days, as of July 25, is 117 points, which is deemed "high." Consequently, we anticipate the pair to trade between 1.0094 and 1.0328 today. A reversal of the Heiken Ashi indicator back down would indicate a potential continuation of the downward trend.
Nearest supoprt levels:
S1 – 1.0132
S2 – 1.0010
S3 – 0.9888
Nearest resistance levels:
R1 – 1.0254
R2 – 1.0376
R3 – 1.0498
Trading Recommendations:
The EUR/USD pair continues to adjust but remains above the moving average. Therefore, we should consider additional long positions with targets of 1.0328 and 1.0376 if the price fixes above the level of 1.0254. The pair's sales will become more relevant when anchored below the moving average with goals of 1.0094 and 1.0010.
Illustrations' justification:
Linear regression channels – assist in identifying the present trend. Currently, the trend is strong if both are moving in the same direction.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be done at the present time.
Murray levels are movement and corrective objectives.
Volatility levels (red lines) represent the price channel in which the pair is anticipated to trade tomorrow, based on current volatility indicators.
The CCI indicator – its entry into the oversold region (below -250) or into the overbought region (above +250) indicates an impending trend reversal in the opposite direction.
