On Friday, the EUR/USD currency pair sharply appreciated, which was naturally associated with the publication of macroeconomic statistics in the U.S. Let's recall that there were quite a few macroeconomic and fundamental events last week. Still, most did not influence the pair's movement as expected. The problem was that many report values turned out to be bland and neutral, so there was no market reaction. However, American statistics turned out to be quite resonant, but at the same time, they weren't clear-cut. We wouldn't have been taken aback had the dollar risen instead of falling.
To put it briefly, the Non-Farm Payrolls data fell short of forecasts by 15,000, and last month's figures were adjusted downward. This meant that for the first time in a considerable period, the Non-Farm Payroll figures for June and July dipped below the 200,000 benchmark. Concurrently, the unemployment rate unexpectedly dropped from 3.6% to 3.5%. Given the weight, the Non-Farm report carries, the dip in the dollar was understandable.
Additionally, it's noteworthy that the European currency has been on a downward trajectory for some weeks now, making an upward adjustment essential. This requisite adjustment and disappointing overseas statistics on Friday led to the dollar's decline. Nonetheless, a sustained downturn of the dollar seems improbable. We've frequently pointed out the ECB's shift towards a more accommodative monetary policy. The Federal Reserve is also relaxing its stance, but its rate is substantially above the ECB. With the dollar weakening against the euro for almost 11 months, the euro can only be expected to surge for a while, especially for substantial reasons.
U.S. inflation might accelerate slightly.
Next week, no macroeconomic statistics or fundamental events are planned for the European Union. At least now, the calendar contains no entries of even minor significance. The only noteworthy item is the consumer price index in Germany, but this will be the second final value for July, which is unlikely to differ much from the first estimate. Accordingly, there will be no market reaction to this report.
In the U.S., there will be many more important and interesting events. Particular attention should be paid to the inflation report for July, which, according to forecasts, may accelerate again to 3.3% y/y. If this happens, the August report will be significant for the Federal Reserve and the U.S. dollar. If U.S. inflation starts rising again or ceases to decrease, it will be a new reason for tightening monetary policy. Remember, there's been talk about the so-called "additional" rate hikes for some time. That is, the Federal Reserve is already operating above its usual level.
Given that the dollar has been consistently falling for almost a year and the ECB subtly hints at a pause in its tightening cycle, the pair should continue to move downward. The market might pause for a week or two since flat periods are the norm. But in the long run, the dollar should compensate for what it missed last year. And slightly weak Non-Farms should not hinder the dollar or the Federal Reserve, which remains the most aggressive central bank regarding rate adjustments.
The average volatility of the euro/dollar currency pair over the last five trading days as of August 6 was 73 points and was characterized as "medium." Thus, we expect the pair to move between levels 1.0935 and 1.1081 on Monday. A downturn in the Heiken Ashi indicator will point to a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.0986
S2 – 1.0925
S3 – 1.0864
Nearest Resistance Levels:
R1 – 1.1047
R2 – 1.1108
R3 – 1.1169
Trading Recommendations:
The EUR/USD pair has begun an upward correction. One can stay in long positions with targets of 1.1081 and 1.1108 until the Heiken Ashi indicator turns downward. Short positions will become relevant only after the price consolidates below the moving average line, with targets at 1.0935 and 1.0925.
Explanations for the Illustrations:
Linear Regression Channels – help determine the current trend. If both are directed similarly, it indicates a strong trend.
Moving Average Line (settings 20.0, smoothed) – identifies the short-term trend and the direction in which to trade.
Murrey Levels – are target levels for movements and corrections.
Volatility Levels (red lines) – are the probable price channel in which the pair will trade over the next day based on current volatility indicators.
CCI Indicator – its entry into the oversold area (below -250) or the overbought area (above +250) indicates an impending trend reversal in the opposite direction.
