The EUR/USD currency pair tried to show a significant increase over the past day but instead did not show a strong drop. Formally, traders had grounds for buying the European currency, but in fact, this judgment is very vague. First of all, let's look at the technical picture. The euro is still located near the moving average line and has spent the last few days in an outright flat. The technical picture is almost identical to the picture for the pound sterling. Both European currencies are trading almost the same now, which allows us to conclude that the factors associated with the dollar and the United States prevail over all others. The European currency, as well as the pound, is trying to continue the upward movement and also does not know why to do it. The technical correction, if it has not ended yet, cannot push the pair up for a long time. Recall that most of the geopolitical and fundamental factors continue to work against the euro and for the US dollar.
Thus, we believe that it is still very early to talk about the end of the long-term downward trend. The pair has stopped a step away from its 20-year lows, but this does not mean that it will not resume falling in a week or a month. Recall that the Fed should raise the key rate both in June and July, and this issue has already been practically resolved and closed. We have already described the mechanism according to which the US dollar can continue to rise in price due to the Fed's rate hike. In short, the higher the Fed rates, the more attractive the American economy and American treasuries are. And Treasury bonds and investments in the US economy cannot be made in euros. It is necessary to buy dollars, therefore, the demand for the US currency may continue to grow. Recall also that COT reports for several months in a row indicate the "bullish" mood of major players, but the euro was mostly falling. This can only happen if the demand for the dollar is even higher and growing.
The ECB has promised to raise rates in the summer and autumn.
Meanwhile, traders waited for the announcement of the results of the ECB meeting. None of them expected that rates would be raised in June. Maximum – the completion of the APP economic stimulus program will be announced. In reality, the EU central bank has made a statement that the key rate will rise by 0.25% in July and again (also, most likely, by 0.25%) in September. Thus, the margin rate may move to the range of 0.5-0.75%, but what does it give? Will such a step be able to extinguish inflation in the European Union if oil is getting more expensive almost every day, and Ukraine is blocked from the export of grain? The whole point is that the ECB can only raise the rate a couple of times, and the Fed is going to raise it until inflation returns to the target of 2%. This is the cardinal difference between the monetary policies of the ECB and the Fed.
Of course, the ECB can change its rhetoric "in the course of the play." Earlier this year, Christine Lagarde compared the European economy to a "disabled person on crutches" and said that there would be no rate increases in 2022. Now the situation is changing. Therefore, it may also change this fall. But by that time, the Fed's rates will have already risen to 2-2.5%, that is, the US currency will still have an advantage over the euro. Thus, formally, the European currency has the opportunity to resume its growth in the coming weeks, because the European regulator has tightened its rhetoric. But we remind you that both major pairs are now looking more at the dollar, the States, and the Fed. And let's say on a 24-hour TF, it is clear that over the past year, the maximum correction of the pair up was an unrealistic 400 points. Now the European currency has moved away from its recent lows by 450. And this month, there will be a meeting of the Fed, at which the rate is guaranteed to be raised by 0.5%.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of June 10 is 79 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.0579 and 1.0737. A reversal of the Heiken Ashi indicator back up will signal a new round of upward movement.
Nearest support levels: S1 – 1.0620 S2 – 1.0498 S3 – 1.0376
Nearest resistance levels: R1 – 1.0742 R2 – 1.0864 R3 – 1.0986
Trading recommendations:
The EUR/USD pair has consolidated back below the moving average and is again trying to adjust downwards. Thus, it is now possible to stay in short positions with targets of 1.0620 and 1.0579 until the Heiken Ashi indicator turns up. Long positions should be opened with a target of 1.0864 if the price is fixed above the level of 1.0742. At this time, there is a high probability of a "swing" and a flat.
