The EUR/USD currency pair attempted to break below the lower boundary of the horizontal channel it has been trading within for several weeks. In the 4-hour timeframe, the sideways movement is not very apparent, but in the lower timeframes, it is clearly visible. Consequently, the price rebounded from the channel's lower boundary and may now aim upwards again. The flat movement persists.
Last week, there were a few significant events, and even those were relatively uneventful. For instance, the inflation report failed to deliver any impactful results, and the European Central Bank meeting outcome was easily predictable. ECB President Christine Lagarde's statements also did not particularly impress traders. It seemed she only reiterated information that the market was already aware of. There was nothing positive in this for the euro.
The ECB signaled its intention to continue easing monetary policy, shifting its primary focus from inflation to economic growth. This implies that rate cuts could be deeper than the market initially expected. On Thursday, Lagarde struggled to answer where the "neutral" rate might be, indicating that the ECB prefers not to set specific targets to avoid being held accountable for unmet expectations. This leaves open the possibility of more significant monetary easing than previously anticipated.
Such information is unlikely to inspire euro buyers. Even without this, we maintained that the euro should continue its decline without any alternative. The euro appears to have exhausted its growth potential during 2022–2024, a period when it either rose or, at the very least, did not fall in situations where it arguably should have. Now, its only path seems to be downward.
The economic calendar for the upcoming week is packed with events. However, most key macroeconomic reports and fundamental developments will center on the pound and the dollar rather than the euro. Nevertheless, the euro will likely react to events such as Jerome Powell's speech, the Federal Reserve meeting, and Christine Lagarde's address (although it's unclear what new information she could provide). Europe will also release reports on business activity, inflation, retail sales, and other economic indicators.
As a result, the week may end with flat movement and a resumption of the downtrend. However, it's important to note that no one can predict what Powell will communicate to the market or how macroeconomic reports in the US and the EU will turn out.
Traders have every reason to anticipate further euro declines, as technical signals on almost all timeframes indicate bearish prospects. That said, it is always wise to account for alternative scenarios. In the markets, nothing can be guaranteed with 100% certainty.
The average volatility of the EUR/USD currency pair over the past five trading days as of December 16 is 66 pips, characterized as "average." On Monday, we expect the pair to move between the levels of 1.0437 and 1.0569. 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 an upward correction, which is still ongoing.
Nearest Support Levels:
- S1 – 1.0376
- S2 – 1.0254
- S3 – 1.0132
Nearest Resistance Levels:
- R1 – 1.0498
- R2 – 1.0620
- R3 – 1.0742
Trading Recommendations:
The EUR/USD pair could resume its downtrend at any moment. For months now, we've been expecting only declines for the euro in the medium term, fully supporting the general bearish trend direction. The market has likely already priced in most or all of the Fed's future rate cuts. If this is the case, the dollar still has no reasons for medium-term declines, which was already a rarity to begin with.
If the price remains below the moving average, short positions can be considered, with targets at 1.0437 and 1.0376. If you are trading using "pure" technical setups, long positions can be considered if the price is above the moving average, with targets at 1.0620 and 1.0636. However, we do not recommend going long. Additionally, the pair has been in a flat market condition for three weeks.
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.
