On Tuesday, the EUR/USD pair began a gradual decline. The price slipped slightly below the moving average line, and the week lacked any significant fundamental or macroeconomic events. As a result, there is little to analyze in the current market environment—no news, reports, speeches, just minimal movement. However, we highlight a few key points suggesting the U.S. dollar may be poised for further growth.
Since the start of the year, we have been reiterating that the dollar is likely to strengthen. The reasons for this are global in nature, and thus, they remain relevant for an extended period. Here's what to remember: If there are no irrational upward movements (primarily driven by manipulation from major players), the dollar will likely continue its upward trajectory. On the weekly timeframe, it is evident that the price has corrected by nearly 61.8% following the last leg of the downtrend, which has lasted approximately 16 years. Even novice traders can understand that the pair is expected to fall below its previous low near the 0.95 level. While all trends eventually end, this one has persisted for 16 years.
There is a common belief that economic cycles typically last 8-10 years. However, we consider this a misconception. Economic cycles last as long as necessary—dictated by circumstances, external influence, or fundamental conditions. Take the current situation, for instance. If we assume the 16-year downtrend is over, the euro should rise to at least 1.2400 over the next one to two years. But what would justify such a rise? Predicting the pair's movement so far in advance is impractical. Countless global events could occur over such a long period, making such forecasts speculative. Moreover, a 20-30% rise in the euro without solid justification is unlikely.
The European economy is in poor shape—or at least worse off than the U.S. economy. This makes the U.S. economy inherently more attractive to investors, providing a fundamental basis for dollar strength. Key factors include the European Central Bank's interest rates, which are lower than those of the Federal Reserve, meaning bank deposits and government bonds offer higher returns in the U.S. than in the EU. The situation would be reversed if the U.S. economy were contracting and the Fed cut rates faster than the ECB. A significant shift in fundamental conditions would be required for the euro to embark on a prolonged uptrend. There is no indication of such a shift on the horizon. Given the current conditions, we expect the pair to continue declining toward the 1.00-1.02 range.
The average volatility of the EUR/USD currency pair over the last five trading days as of December 11 is 75 pips, classified as "average." For Wednesday, we expect the pair to move between 1.0448 and 1.0598. The higher linear regression channel is directed downward, indicating that the global downtrend remains intact. The CCI indicator has entered the oversold zone several times, triggering a corrective rebound that is currently ongoing.
Support Levels:
- S1: 1.0498
- S2: 1.0376
- S3: 1.0254
Resistance Levels:
- R1: 1.0620
- R2: 1.0742
- R3: 1.0864
Trading Recommendations:
The EUR/USD pair could resume its downtrend at any time. For months, we've consistently maintained a bearish outlook for the euro in the medium term and fully support the overall downward trend. There is a high likelihood that the market has already priced in all, or nearly all, of the Fed's anticipated rate cuts. If this is the case, the dollar still has no substantial reasons for a medium-term decline, although there were few of them before. Short positions can be considered targeting 1.0448 and 1.0376 as long as the price remains below the moving average. If you are trading purely on technical signals, longs can be considered when the price is above the moving average, targeting 1.0620 and 1.0636. However, we do not recommend long positions at this time.
Explanation of Illustrations:
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
