4-hour timeframe
Technical data:
The upper channel of linear regression: direction – down.
The lower channel of linear regression: direction – up.
The moving average (20; smoothed) – up.
CCI: 4.0963
The fourth trading day for EUR/USD pair begins with an unexpected upward movement. The pair perfectly worked out the moving average line, from which it rebounded and now it can resume the upward trend. However, ahead of the publication of a whole package of macroeconomic data from the European Union and the States, as well as the summing up of the ECB meeting and Mario Draghi's press conference, we believe that buying the euro/dollar pair is a rather risky and reckless move. By the way, volatility in recent days has been reduced, but today we expect it to increase significantly.
All macroeconomic reports that will be published today, we have analyzed in yesterday's evening review. Familiarize yourself with it. Today, one question remains unresolved: will Mario Draghi make any changes in monetary policy or will the ECB meeting become just a "farewell ball" for him? To understand the possible actions of the regulator, you first need to understand, and what are the grounds for making any changes? It should be emphasized at once that the quantitative easing program will start functioning only from November 1, so it is unlikely to be affected by any changes. Still, to change the program, its volumes, you must first wait for the results of its work, at least for a few months. Traders don't expect any changes in the rate either, but let's go back to the grounds.
Over the last month, GDP in quarterly terms showed an increase of 0.2% against 0.4% a month earlier, in annual terms + 1.2% against + 1.3% a month earlier. Inflation slowed from 1.0% to 0.8%, the manufacturing PMI fell to 45.7, the business activity index in the services sector fell from 53.5 to 51.6, and only the unemployment rate fell by 0.1%, and retail sales increased by 0.3%. Thus, as we can see, inflation and the situation in industrial production give the regulator a large number of reasons to worry. This may not be enough to reduce the rate "right now", but if this trend continues in the future, we will almost certainly see another easing of monetary policy, probably with Christine Lagarde at the head of the European Central Bank.
Well, Brexit stands as a separate mansion, from which the EU economy will also suffer in any case, whether it is a "soft" or "hard" exit. Christine Lagarde just recently noted that the entire world economy will feel the negative consequences of Brexit, let alone European countries.
We have understood that the ECB has grounds for lowering the rate, the only question is the timing. Since the regulator has already used all the most important instruments of monetary policy easing, now it will not be able to make adjustments at every meeting. Even lowering the rate, when it is already -0.5%, will not work regularly. Some economists, however, believe that the ECB has not yet reached the lower limit on rate cuts, the limit when the credit sector will be damaged by ultra-low rates. But everyone agrees that lowering the key rate is an extreme measure for the regulator now. Thus, there is not much room for maneuver. Unlike the Fed, which can safely continue to reduce the rate and even run a program of QE. As we have repeatedly said, this is precisely the long-term chance of the euro. The EU economy can already be said to be at the bottom. It certainly has a lot to fall, but investors are more interested in rates and the actions of the central bank. The ECB's hands are already shackled, and the Fed can now safely "catch up" with the European Central Bank. The question is, will they do it? We all have long understood and realized the position of Donald Trump – to reduce rates to 0%. But will the Federal Reserve take such a step? Or will he finally remember his independence from political influence?
Today, in general, we have the right to expect a downward movement, but for its identification, it is recommended to wait for the overcoming of the moving average line and the Murray level of "6/8" - 1.1108. At the moment, the upward trend remains, and the indicator Haiken Ashi turned up, which indicates a good chance of resuming the upward movement. The small linear regression channel also supports the upward trend of traders. However, the fundamental background will be strong today and may force market participants to change their attitude to the euro/dollar pair.
Nearest support levels:
S1 – 1.1108
S2 – 1.1047
S3 – 1.0986
Nearest resistance levels:
R1 – 1.1169
R2 – 1.1230
R3 – 1.1292
Trading recommendations:
The euro/dollar pair completed a downward correction near the moving average. Thus, it is recommended now to resume trading on the increase with the target of 1.1169, and in case of overcoming this target, with the target of 1.1230. During the publication of the most important macroeconomic statistics, increased caution is recommended, since sharp price reversals are possible. It is recommended to sell the euro currency not earlier than the bears move to 1.1047.
In addition to the technical picture, fundamental data and the time of their release should also be taken into account.
Explanation of the illustrations:
The upper channel of linear regression – the blue line of the unidirectional movement.
The lower channel of linear regression – the purple line of the unidirectional movement.
CCI – the blue line in the indicator window.
The moving average (20; smoothed) – the blue line on the price chart.
Support and resistance – red horizontal lines.
Heiken Ashi – an indicator that colors bars in blue or purple.
Possible variants of the price movement:
Red and green arrows.
