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Overview of the EUR / USD pair. July 15. Will Jerome Powell’s opinion on QE change?

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4-hour timeframe Technical data: Major linear regression channel: direction – down. The lowest linear regression channel: direction – down. Moving average (20; smoothed) – sideways. СCI: -5.9182 The EUR / USD currency pair on Wednesday, July 14, continued to be within the downtrend, which began on May 25. However, the downward movement of the pair remains extremely progressive and unhurried. On the one hand, this is logical, since the euro / dollar pair is the main currency pair in the foreign exchange market and is traditionally not too volatile. And the euro with the dollar is considered one of the most stable and popular currencies in the world. On the other hand, we are interested in the prospects of this pair for the near future. And the technical picture now is such that it is still very difficult to count on further strengthening of the American currency. We have already said that we are quite expecting a new round of the downward movement around the level of 1.1700. This forecast is due to the fact that on the 24-hour timeframe, the pair is frankly inside a new round of corrective movement against the global uptrend, which in time may continue for several more years quite calmly. Corrections often take the form of three waves, so now we are expecting just such a scenario. But already near the level of 1.1700, to which there is very little, this correction can be considered complete. At the same time, global fundamental factors, from our point of view, continue to be on the side of the euro currency. At what it is due to the negative from the United States, and not due to the positive from the European Union. Recall that the Fed continues to inject trillions of dollars directly into the economy and through the US government, buying back its debts. It is this factor that continues to inflate the US money supply, which leads to both crazy inflation and an increase in the supply of the dollar in the foreign exchange market. Perhaps, if Jerome Powell and the Fed announce that the quantitative stimulus program will be phased out in the near future, then the US currency will receive additional market support. However, a lot will play here when exactly the QE program will expire. From a technical point of view, on the 4-hour timeframe, quotes fell by 490 points in a month and a half, and of them 270 points went down two days after the Fed meeting, when Jerome Powell hinted at a possible start of discussion of the question of curtailing the stimulus program among members of the monetary committee … The most interesting thing is that in his later statements, he repeatedly drew attention to the fact that the Fed is not going to tighten monetary policy just because inflation is growing. The head of the Fed made it clear that the labor market, which is far from full recovery, is of higher priority. Thus, the American currency seems to have additional market support, since the chances that the Fed will nevertheless announce the curtailment of the QE program are growing at the same rate as inflation in the United States. But at the same time, Powell himself has regularly stated throughout the last year that inflation is an important indicator, but not a key one. Thus, we believe that in the coming months the Fed will not agree to the completion of the QE program, which means that the US dollar remains under pressure from the market globally, although it may continue to moderately grow in the medium term. By the way, today Jerome Powell will make his speech in the US Congress. The Fed chairman has been speaking to Congress for two days and his first speech was late last night. Thus, already this morning it will be possible to find out what Powell said and whether he touched on the topic of inflation and the curtailment of QE. The reaction to Powell’s speech will most likely also be extended for two days in time, since at night the American markets and exchanges will also be closed, as well as the European ones. Thus, the processing of Powell’s statements is likely to begin this morning. On the other hand, no one knows what exactly the Fed chairman will say, so it is definitely not recommended to guess on the coffee grounds and based on this make trading decisions. Moreover, the couple is now facing more important questions. Whatever the market reaction to Powell’s speech in Congress, it is now important to understand whether the dollar will receive long-term support from traders or whether the fairy tale of the last month and a half will end in the near future for it. Thus, Powell’s rhetoric is extremely important, but we believe that it is better to clearly understand everything that the head of the Fed has to say, and therefore already trade in accordance with these statements. As for our opinion regarding Powell’s possible statements, it does not differ from the opinion voiced earlier. We do not believe that in 2021 the Fed will curtail the QE program, since the labor market is still very far from pre-pandemic levels. Cash injections are needed to keep the labor market recovering and inflation to be negligible. Moreover, the head of the FRS has already made it clear that the rise in inflation is a temporary phenomenon. Consequently, if this was not just an attempt to calm the markets, the CPI could actually start to slow in the next few months. We also do not believe that inflation will start to slow down, but on this issue Jerome Powell clearly knows better than we do. As such, we do not believe that there will be any hints at the end of the QE in Congress. Moreover, inflation was published the day before yesterday, and Powell’s first speech took place yesterday evening. Most likely, the text of the speech was drawn up long before the publication of the inflation report. Consequently, it is unlikely to include updated data on prices in America. The congressmen can, of course, ask Powell the corresponding question, but Jerome will most likely try to answer it as vaguely as possible and adhering to the old rhetoric. The volatility of the euro / dollar currency pair as of July 15 is 71 points and is characterized as “average”. Thus, we expect the pair to move between the levels of 1.1762 and 1.1904 today. A reversal of the Heiken Ashi indicator back downward will signal the resumption of the downward movement. Nearest support levels: S1 – 1.1780 S2 – 1.1719 S3 – 1.1658 Nearest resistance levels: R1 – 1.1841 R2 – 1.1902 R3 – 1.1963 bounce off it. Thus, today it is recommended to open new short positions with the targets of 1.1780 and 1.1762 in case of a price rebound from the moving average. It is now recommended to open buy orders not earlier than the price fixing above the moving average line with the target of 1.1902. Recommended reading: Trading signals, COT report: Forecast and trading signals for EUR / USD for July 15. Forecast and trading signals for GBP / USD for July 15. – Source: InstaForex

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