The EUR/USD currency pair began the new week very calmly and measuredly and continues that way. Yesterday, the first more or less significant report was published in the States. In fact, due to its "significance," this report is now one of the most important ones, as inflation directly affects the monetary policy of a central bank. And the exchange rate of a currency directly depends on monetary policy. However, this time, inflation disappointed both bulls and bears. But we will talk about that a little later.
For now, it should be noted that the pair remain inside the sideways channel. After the publication of the consumer price index, the pair briefly soared upward, but it could not even secure a position above the moving average line. The market reaction to the most important report was about 60 points. Is it worth mentioning that 60 points are very little in any case? We currently do not have the widest sideways channel, but even for it, 60 points are too little to expect an exit. Thus, we saw a new wave of upward movement within this channel, and the flat did not go anywhere. The trend line remains formal because its overcoming does not lead to growth or decline. We have long been accustomed to the latter, but the ascending trend has smoothly flowed into the flat, so all signals near the moving average are false.
On the 24-hour TF, the situation has stayed the same this week or in the past few weeks. The pair is still located slightly above the Fibonacci level of 50.0%, maintaining the possibility of continued growth. However, there are no fundamental factors for this, and the euro has already risen almost 800 points in the last two months without properly correcting during this time. Accordingly, there were a few reasons for the euro to grow, and now there are none. The ECB makes it clear every week that the rate will continue to rise for some time, but hardly for long and hardly significantly. It can grow by another 0.5% in total. Such an increase is most likely already priced into the market.
The inflation report coincided with the experts' forecasts, who expected a maximum decrease of 0.1%. The core inflation rate also decreased by 0.1%. Since the actual value coincided with the forecast, there could be no reaction. But instead, we saw a slight fall in the dollar, and the pair returned to their original positions. A completely normal and even logical market reaction. How long has it been since we had to say something similar? No matter how strongly or weakly inflation is slowing down, it is still slowing down. This means the Fed is on the right track, and there is no reason for a new tightening monetary policy. April may have been the only month when inflation fell minimally. By the end of May, it could slow down much more, so it is too early to panic.
Since there were no grounds for the Fed to implement additional tightening on Wednesday, and the next meeting will take place in a month and a half, the US dollar fundamentally still needs to receive a growth factor. But at the same time, it remains excessively oversold due to the movement of the last two months. Therefore, as we said yesterday, we expect the pair to fall regardless of the consumer price index value. However, now it is necessary to leave the sideways channel first.
It should also be noted that several ECB representatives have already made statements this week. Some said that the rate should continue to rise, while others said that the moment of the end of the tightening cycle is already close. This is not surprising, as representatives of different countries take into account the specifics of their inflation, so opinions differ. However, we believe that ECB tightening will only last for a while, so the euro currency has no reason for new growth.
The average volatility of the euro/dollar currency pair for the last five trading days as of May 10th is 74 points and is characterized as "average." Thus, we expect the pair to move between 1.0909 and 1.1057 on Thursday. A reversal of the Heiken Ashi indicator back down will indicate a new wave of downward movement within the flat.
Nearest support levels:
S1 – 1.0864
S2 – 1.0742
S3 – 1.0620
Nearest resistance levels:
R1 – 1.0986
R2 – 1.1108
R3 – 1.1230
Trading recommendations:
The EUR/USD pair continues to move within the sideways channel. Trading can only be done based on reversals of the Heiken Ashi indicator. Or on the youngest TFs, where at least intraday trends can be caught. Volatility is low, so trading on the 4-hour TF is quite difficult.
Explanation of illustrations:
Linear regression channels - help determine the current trend. If both are directed in one direction, the trend is strong.
Moving average line (settings 20.0, smoothed) - determines the short-term tendency and direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable 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 overbought area (above +250) means a trend reversal in the opposite direction is approaching.
