The EUR/USD currency pair adjusted slightly on Wednesday after it failed to overcome the Murray level of "2/8"-1.0132. However, it could not gain a foothold above the Murray level of "3/8"-1.0193, so we expect a resumption of the downward movement. It is important to understand that the level of 1.0132 is the lower boundary of the side channel in which the pair has spent quite a long time in the last month. Thus, it still needs to be overcome. We also recall that the pair's exit from the side channel occurred last week when the US inflation report was published. That is, if not for this report, it is quite possible that the euro currency would have continued to trade flat. This week, despite a rather strong drop, the pair have not yet been able to overcome the level of 1.0132. However, if it is overcome, the probability of a resumption of the global downward trend will increase significantly.
We have already said many times that many factors are now pointing towards the resumption of the downward trend. First, it is a technique. The price has adjusted over the past month by 400 points, which is how much it has adjusted in the last six months as part of a downward trend. On a 24-hour TF, it couldn't even go inside the Ichimoku cloud, let alone something more. The second is geopolitics. A recession is looming in the European Union, which may be connected not even with the tightening of the ECB's monetary policy (which still does not exist) but with the gas conflict between the EU and Russia. Recall that the EU wants but cannot give up Russian gas, and Russia can use this lever of pressure on the European Union to obtain other preferences and concessions. And the EU economy may seriously slow down this winter due to a shortage of blue fuel in production. The third is the "foundation." The difference in monetary approaches between the Fed and the ECB remains very serious, and this is a very strong factor in supporting the US currency.
The recession in the Eurozone will not change absolutely anything for the euro currency.
Yesterday was marked only by the GDP publication in the European Union's second quarter. And traders frankly ignored this report. Yesterday, we already said that this would be only the second estimate of the indicator for the second quarter, so traders are already more or less ready to see an increase of 0.5-0.7% q/q. As a result, the second estimate was 0.6%, which does not change the essence of the matter at all. Yes, the GDP in the European Union not only remains positive but also accelerates, since in the first quarter the growth was 0.5%, and in the fourth of last year – 0.4%. However, in general, there is no special meaning to this. The European Union is still afloat in economic terms only because the ECB has raised its key rate only once over the past 11 years. Until recently, it continued to pour money into the economy, stimulating it. That is, there is no question of any tightening of monetary policy and the fight against inflation in the EU now. Consequently, there is no pressure on the economy, and it shows at least some growth. However, everything may change with the onset of the cold months, when the need for heating, fuel, gas, and electricity will increase dramatically.
According to the latest data, all types of fuel and energy in the European Union are increasing in price. It means not only that ordinary consumers will pay several times more for gas, electricity, and heating, but it also means that everyone will have to save. And save not only ordinary citizens but also businesses, industries, and firms. And what does this mean for the economy? Fewer goods will be produced, fewer services provided, less income and profit received, fewer taxes paid, and so on. Based on these conclusions, Europe is expected to start a recession at the end of 2022. In the US, the recession has technically already begun. And in the UK – it will also start at the end of this year. Therefore, there is nothing terrible for the euro currency because a recession will begin in the EU. The euro is falling well against the dollar without it.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of August 18 is 84 points, which is characterized as "average." Thus, we expect the pair to move today between 1.0081 and 1.0247. The upward reversal of the Heiken Ashi indicator signals a new round of upward correction.
Nearest support levels:
S1 – 1.0132
S2 – 1.0071
S3 – 1.0010
Nearest resistance levels:
R1 – 1.0193
R2 – 1.0254
R3 – 1.0315
Trading Recommendations:
The EUR/USD pair resumed its downward movement. Thus, it is now possible to stay in short positions with targets of 1.0080 and 1.0071 until the Heiken Ashi indicator turns up. It will be possible to consider long positions after the price is fixed above the moving average with targets of 1.0254 and 1.0315.
Explanations of the illustrations:
Linear regression channels – help determine the current trend. If both are directed in the same direction, then the trend is strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which you should trade now.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.
The 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.
