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Overview of the EUR / USD pair. July, 12. Inflationary week. The dollar is tired of growing, which the European currencies can take advantage of.


4-hour timeframe Technical data: Major linear regression channel: direction – down. The lowest linear regression channel: direction – down. Moving average (20; smoothed) – sideways. СCI: 112.3572 The EUR / USD currency pair on Friday, July 9, continued to trade as usual, but by the end of the day managed to overcome the moving average line, which changed the current trend to an upward one. Recall that our main scenario until Friday was the scenario with a decline in quotations to the level of 1.1700 as part of a new round of corrective movement on the 24-hour timeframe, after which the global upward trend resumes above the 23rd level. However, the last two days of last week showed that the price may not reach the level of 1.1700. At least at the moment, when the price has consolidated above the moving average, it is worth considering the option with a further movement to the North. And it is worth returning to the variant with a possible fall to the level of 1.1700 if the price returns back to the area below the moving average line. We would like to remind you that in the medium and long term, in any case, we expect a resumption of the upward trend, as we still believe that global fundamental factors are working against the American currency. It’s just that a couple cannot move continuously in one direction without recoil and without correction. Sometimes corrections are needed. And if we are talking about global trends, then corrections can take several months. Now we are talking about just such a correction and at the moment it can already be completed. Consequently, we continue to expect the resumption of the fall in the US dollar, as inflation in the United States continues to increase and significantly exceeds the European one, the US authorities and the FRS continue to pour huge amounts of money into the American economy, inflating the money supply. Of course, there is an opinion that the American currency will continue to rise in price little by little in the coming months due to the factor of higher growth rates of the American economy. But we believe that this will not happen, since the US GDP has been growing faster than the European one for several quarters, while the US dollar continues to be under pressure from the markets. What does the new week have in store for traders and what moves should be expected? It should be noted right away that macroeconomic statistics continue to be ignored by the markets in most cases. Reports are processed selectively and it is not always logical. Fundamental information from the ECB and the Fed, as well as personally from Christine Lagarde and Jerome Powell, does not always arouse any interest among traders at all. However, we have already said many times that the heads of central banks cannot constantly surprise and provide new important information. In principle, the positions of the ECB and the Fed are quite clear. The FRS is going to start discussing curtailing the quantitative stimulus program in the near future, and may start raising rates next year. The ECB continues to stimulate the economy with the PEPP and QE programs, but at the same time it cannot please the markets with a high rate of recovery, and the latest statements by Christine Lagarde were more “dovish” than “hawkish”. In the European Union, they do not even think about ending incentives or raising rates. Thus, the ECB is likely to start tightening monetary policy at least a year later than the Fed. Even inflation figures show that the European economy is suffering more than it is recovering. Barely reaching the 2% level, the indicator immediately began to roll back down. And, from our point of view, in the next months it may already decline, since, firstly, all the heads of the Central Bank simultaneously announced that the jump in inflation would be temporary, and, secondly, the last few months everywhere there was an increase in inflation, because these months had a very low base in 2020. Thus, the change in the ECB’s inflation target from “slightly less than 2%” to “stable 2%” does not look very serious now. For most of the last decade, the EU has failed to achieve a stable 2% inflation. And weak inflation slows down economic growth. So it turns out that no matter which side you look at, the European Union is still lagging behind the United States economically. But the American currency does not receive special dividends from this. In the new week, all traders’ attention will be focused on the inflation reports, which will be published in the EU, the US and the UK. It is expected that both in the US and in the European Union, the consumer price index will slightly slow down by the end of June. In America – up to 4.9% y / y, and in the EU – up to 1.9% y / y. Thus, if these forecasts are confirmed, it is unlikely that this data will be followed by a reaction from traders. However, surprises are also possible. For example, if inflation continues to accelerate in the United States, but in the European Union, for example, it will suddenly collapse. Let’s remind that the growth of inflation for the economy is generally considered a negative factor. Roughly speaking, inflation depreciates money, so the rise in inflation should have a negative impact on the exchange rate. However, in our case, the reaction of traders to these reports can be almost any. Everything will depend on how the actual value does not correspond to the forecast and how market participants themselves interpret this data. Recall that a couple of weeks ago, a strong NonFarm Payrolls report provoked not a rise in the dollar, but its fall … Also, next week will be published a report on industrial production in the EU, producer price index in the US, claims for unemployment benefits in the US, industrial production in the US and retail in the United States. We believe that only the latest retail sales report on Friday will attract attention. The rest – if they cause any reaction from traders, then by no more than 15-20 points, which will be hardly noticeable even on a 5-minute timeframe. On the whole, the most interesting question of the new week will be “have the bears saturated with the sales of the pair?” We believe that another round of the downward movement may well be. However, on the hourly timeframe, the quotes of the euro / dollar pair crossed the downtrend line, and on the 4-hour timeframe – the moving average. Therefore, it is highly likely that the upward movement will continue this week. As for volatility, it is likely to remain weak, 50-60 pips per day, no more. Thus, if the pair really took the course to the 23rd level, then overcoming this distance may take a month and a half time. The volatility of the euro / dollar currency pair as of July 12 is 63 points and is characterized as “average”. Thus, we expect the pair to move between the levels of 1.1814 and 1.1940 today. A downward reversal of the Heiken Ashi indicator will signal a possible resumption of the downward movement. The nearest support levels: S1 – 1.1841 S2 – 1.1780 S3 – 1.1719 The nearest resistance levels: R1 – 1.1902 R2 – 1.1963 R3 – 1.2024 Trading recommendations: The EUR / USD pair has overcome the moving average and will try continue moving up. Thus, today it is recommended to stay in long positions with targets at 1.1902 and 1.1940 until the Heiken Ashi indicator turns down. It is now recommended to open sell orders not earlier than the price fixing below the moving average line with targets at 1.1780 and 1.1719. Recommended reading: Review of the GBP / USD pair. July, 12. Crazy pound sterling or bears gave up and gave up. Trading signals, COT report: Forecast and trading signals for EUR / USD for July 12. Forecast and trading signals for GBP / USD for July 12. – Source: InstaForex


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