EUR/USD rallied on Thursday. Admittedly, this rally was only worth 60 pips, but compared to the 20-pip volatility the day before, even such a movement seemed "enormous." To give a bit of a preview, the main movement occurred after the release of U.S. inflation data, which slowed to 3.0% in June instead of the forecasted 3.1%. We assumed that even a 3.1% figure would trigger the dollar's decline, let alone a stronger slowdown in US inflation...
Thus, the dollar continues to fall, now calling into question the entire technical picture of the past year. Yes, the macroeconomic background in the U.S. over the past three months has been lacking, but at the same time, we cannot deny the fact that the European Central Bank has lowered borrowing costs. We have a situation where the market considers the macroeconomic background but ignores the fundamental one. Thus, in general, the nature of the movement remains the same. The euro is happily using every opportunity, while the dollar continues to fall both when there are reasons for it and when there are none.
We cannot say that it was illogical for the dollar to fall yesterday. Indeed, a stronger slowdown in inflation brings the Federal Reserve closer to the first rate cut. But it's also important to mention that the last two inflation reports also provoked a sharp decline in the dollar. And in the last two months, the slowdown was 0.1%, and in one of the two cases, it matched the forecasts. Thus, the last three inflation reports shows one thing: the market is using any excuse to sell the dollar.
From our perspective, the prospects for the euro remain quite contradictory. Suppose the Fed starts lowering rates in September (which the market already priced in at the beginning of the year), but how can we justify the euro's rise and the dollar's fall if the ECB is also lowering key rates at the same time? No matter how you look at it, the dollar shouldn't fall for long or significantly at that. However, in the near future, the global technical picture may still change. These changes will have to be considered in order to form a new forecast for the coming months. For now, we would advise closely watching the 1.0917 level, which serves as the latest local high on the 24-hour timeframe. If the euro overcomes this mark, we are highly likely to observe an upward movement for some time. At the same time, we assume that the euro's growth will end between the levels of 1.09 and 1.10, as the pair has traded mainly between 1.10 and 1.0650 in the last nine months.
The average volatility of the EUR/USD pair over the last five trading days as of July 12 is 42 pips, which is considered a very low value. We expect the pair to move between 1.0825 and 1.0909 on Friday. The higher linear regression channel is directed upwards, but the global downward trend remains intact. The CCI indicator entered the oversold area, but it has already been more than compensated by the bullish correction.
Nearest support levels:
S1 - 1.0864
S2 - 1.0803
S3 - 1.0742
Nearest resistance levels:
R1 - 1.0925
R2 - 1.0986
R3 - 1.1047
Trading Recommendations:
EUR/USD maintains a global downtrend, while it continues to rise on the 4-hour timeframe. In previous reviews, we said that we expect a continuation of the global downtrend. However, at this time we can't deny that the euro is rising again due to comprehensible reasons. Unfortunately, both the market and macro data are against the dollar at the moment. We believe that the euro can't start a new global trend right now when the ECB eases its monetary policy, so most likely the pair will continue to fluctuate between the levels of 1.0650 and 1.1000. Traders may opt for short positions in the upper part of this range and after the price consolidates below the moving average. Targets are around the 1.0681 level.
Explanation of the chart:
- Linear Regression Channels – Helps determine the current trend. If both are directed in the same direction, it means the trend is currently strong.
- Moving Average Line (settings 20.0, smoothed) – Determines the short-term trend and the direction in which trading should currently be conducted.
- 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 the overbought area (above +250) means that a trend reversal in the opposite direction is imminent.
