The EUR/USD Pair Continues To Trend Downward
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On Friday, the EUR/USD currency pair maintained its consistent downward trend. Without any correction or rollback, inertia has probably already taken place. This is the exact scenario we anticipated from the pair. The only issue is that the performance started a little later than we anticipated. The unjustified growth of the euro currency could not, however, continue indefinitely; sooner or later, a significant downward correction had to start. It is easier to detect the upward movement on the 24-hour TF, which must be adjusted downward to anticipate any new trend. According to our assessment, the pair has the requisite ability to achieve price parity within the next one to two months. Although the price is unlikely to fall to exact parity, it may still do so and reach $1.02. This is confirmed by the fact that the most recent macroeconomic statistics from overseas were very strong, particularly when the most important labor market and unemployment reports are considered. Despite a slower rate of reduction in January, inflation did not especially disappoint either. Even more significant is the Fed's willingness to tighten its "hawkish" stance on monetary policy to stop the high inflation period from lasting for several years. James Bullard, for instance, stated last week that the rate should be raised further to prevent a repeat of the situation from the 1970s when high inflation accompanied the economy for more than ten years. As a result, the rate might finally become significantly higher in 2023; we'll talk about this later.
On the 24-hour TF, it is also very obvious that the pair may soon break through the Ichimoku cloud, which would be a strong sell signal. Since we do not now see any factors that could push the euro below 0.9500, we are not currently evaluating the possibility of restarting a long-term downward trend. However, in the foreign currency market, no option can be completely ruled out. The euro currency may fall precipitously if the ECB begins to lose support on the subject of raising the key rate. Also not mentioned is the ongoing geopolitical situation in Ukraine.
The most popular plan for 2023 is to increase the Fed rate to 5–6% and then keep it there for at least a year. Back in January, the market predicted that 1-2 rate rises would be expected, followed by a pause. Real inflation statistics, however, demonstrate that, in reality, anything is possible. The majority of experts and analysts base their predictions of the rate merely on the simple fact that inflation has decreased over the past seven months. This is a slightly incorrect strategy, in our opinion, because the US inflation rate declined due to both the worldwide decrease in energy costs and the Fed's tightening of monetary policy. Prices have steadied over the past month, and inflation in the US has already begun to slow down. It should be kept in mind that there is a delay between the rate rise and the way the economy responds to it. If it has been several months, then inflation has not yet shown its final decline. Nevertheless, who can definitively state at what point the rate should be increased to bring inflation back to 2% within a year? After all, the Fed is deciding on the rate based solely on the most recent figures on consumer prices. This makes it appear as though it is operating almost blindly.
The needed rate level is determined by the "Taylor rule," which takes GDP and the desired inflation rate into account. The Fed and other central banks allegedly pay attention to this rule. It predicts that in 2023, the rate will increase to 8–9%. Of course, it is nearly impossible to believe this now, but it is important to keep in mind that Fed officials, particularly James Bullard, the Fed's most aggressive "hawk," spoke of a high rate of 3.5% at the beginning of 2022. The rate has since increased to roughly 5%, and the regulator is considering many additional rises. As a result, we first think that inflation may slow down in its decline to the point where its pace becomes nominal. Inflation in Germany started to increase in January. Second, if inflation data is unsatisfactory, the Fed may increase the rate to 6–7%. Yet a very important question is how much the ECB can raise the rate. The euro currency may eventually fall below price parity if the European regulator backs down.
As of February 27, the euro/dollar currency pair's average volatility over the previous five trading days was 58 points, which is considered "normal." Hence, on Monday, we anticipate the pair to move between 1.0488 and 1.0604. A new round of correction will be signaled by the Heiken Ashi indicator's upward movement.
Nearest levels of support
S1 – 1.0498
S2 – 1.0376
S3 – 1.0254
Nearest levels of resistance
R1 – 1.0620
R2 – 1.0742
R3 – 1.0864
Trade Suggestions:
The EUR/USD pair continues to trend downward. Unless the Heiken Ashi indication turns up, you can continue to hold short positions with targets of 1.0498 and 1.0488. If the price is fixed above the moving average line with a target of 1.0742, long positions can be opened.
Explanations for the illustrations:
Determine the present trend with the use of linear regression channels. The trend is now strong if they are both moving in the same direction.
Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction.
Murray levels serve as the starting point for adjustments and movements.
Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.
A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.
Relevance up to 01:00 2023-02-28 UTC+1 This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here.
