The currency pair EUR/USD continued its sluggish decline during the penultimate trading day of the week. The fact that even yesterday, on a day with minimal volatility, the pair was declining rather than rising speaks volumes. This indicates that the market is bearish and no other scenarios exist. However, we have been discussing this for many months, anticipating a significant decline in the euro in the first half of the year. Unfortunately, during the first six months, the market firmly believed that the ECB would raise rates to the level of the Fed, while we consistently stated that the European Central Bank's rate would increase much more modestly. As we can see, we are now receiving information from ECB insiders indicating an impending pause. Many monetary committee members believe there is no need for further tightening in the European economy.
Thus, there were very few reasons for the euro to rise, and now there are none. Based on this simple conclusion, we expect further declines in the pair. Remembering that we've been discussing a return to the 5–6 levels for several months is worth remembering. We are only 100 points away from the nearest target, and this decline won't stop there. Without growth factors, it is difficult to show a new phase of a global upward trend, especially considering several previous ones were unfounded.
In the 24-hour timeframe, the pair is confidently moving downward. It's important to remember that the volatility of the European currency has always been low, so traders should not interpret losses of 20–30 points per day as a "weak decline." In a couple of weeks, its fate will be determined when the price works through the level of 1.0609.
ECB Meeting – a pause is possible.
Next week, the ECB meeting will occur, which will be the first in the "trio" that interests us. A month or two ago, the market could only speculate about the decision that would be made in September, and official forecasts now indicate that the interest rate will remain unchanged after the September meeting. It is not excluded that the recent weeks of decline in the European currency are based on this factor. If the ECB pauses, it will signify that the "end" is near. However, half of the monetary policy committee has already openly stated this. Therefore, we reiterate that expecting the euro to rise soon is extremely difficult.
We should also pay attention to the state of the European economy, which is objectively worse than that of America. The market ignored many macroeconomic factors for a long time, but now that the euro is no longer rising for no apparent reason, it may "remember" them. What can support the euro in the second half of 2023? From our perspective, it's only a softening of the Fed's hawkish rhetoric. It's hard to say when it will happen, but it's unlikely that the American central bank will raise rates more than once by the end of the year. However, it will all depend on inflation since the goal in the United States is not just to return inflation to 2% but to do so as quickly as possible. Thus, if we learn about a new acceleration in the Consumer Price Index next week, there should be no doubt that rates will increase in September. And then they may rise again in October or December.
In the case of the ECB, even if inflation rises again, it will not signify additional tightening. Therefore, the European currency lags behind the US dollar in all parameters.
The average volatility of the EUR/USD currency pair over the last five trading days as of September 8th is 66 pips and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0648 and 1.0780 on Friday. A downward reversal of the Heiken Ashi indicator will indicate a continuation of the southward movement.
The nearest support levels:
S1 – 1.0681
S2 – 1.0620
The nearest resistance levels:
R1 – 1.0742
R2 – 1.0803
R3 – 1.0864
Trading recommendations:
The EUR/USD pair continues its downward movement. Short positions can be considered with targets at 1.0681 and 1.0648 in the case of a Heiken Ashi downward reversal. Long positions can be considered if the price solidifies above the moving average line, with targets at 1.0803 and 1.0864.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong trend.
The moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel in which the pair will move the next day, based on current volatility indicators.
CCI indicator – its entry into the overbought region (above +250) or oversold region (below -250) indicates an upcoming trend reversal in the opposite direction.
