Overview of the EUR/USD pair. August 1st. ECB representatives are suggesting a possible pause in September
August 1, 2023 7:21 am
On August 1st, the EUR/USD currency pair resumed its downward movement following a preliminary correction toward the moving average line. Yesterday’s trading day had the potential to be very interesting for the euro, and it turned out to be just that, as we received two important reports: one on inflation and the other on GDP. However, the market’s reaction was weak, to say the least, as both reports showed values exactly as forecasted. Nevertheless, it’s worth noting that GDP grew by 0.3% in the second quarter, the highest value in the last three quarters, and inflation decreased by 0.2% year-on-year to 5.3%, although this slowdown cannot be considered significant.
The core inflation, which remained unchanged in July, is causing the most concern for the ECB. Overall, inflation remains consistently high, suggesting the possibility of a few more tightening moves in monetary policy. The question is whether the ECB is ready to raise the key rate three or four more times. We have repeatedly stated that this is unlikely.
As a result, the current downward trend continues, and the easing of monetary rhetoric from ECB representatives is working against the euro, which has risen in recent months mainly based on high market rate expectations. The euro has risen too high and should fall lower to restore balance with the US dollar.
Shimkus and Kazimir do not support a rate hike in September.
As we mentioned, signals of a possible pause in September have been emerging recently. This started even before the ECB meeting last week when some monetary committee members began talking about the possibility of skipping a tightening move in September. This view was confirmed by Christine Lagarde, who allowed for a pause at the next ECB meeting. Following the meeting, more ECB members gave speeches, including notable interviews with Peter Kazimir and Gediminas Simkus.
It is important to note that the ECB is the central bank for 27 countries, and naturally, there is no unanimous view on the interest rate. Some local central bank heads support further tightening, while others do not. Therefore, a final decision on the rate has not been made yet, but as they say, “Where there’s smoke, there’s fire.” Gediminas Simkus stated that the central bank is close to the peak rate. What does this mean? It means we can expect, at most, one more rate hike. He suggested that the rate could remain unchanged in September and increase by 0.25% in October. He also noted that the rate is unlikely to be reduced in the first half of 2024, which is logical given the ECB’s less hawkish stance compared to the Federal Reserve or the Bank of England.
His colleague, Peter Kazimir, also mentioned “approaching the peak rate value” and noted that the pause in September would not mean the end of the tightening cycle. He added that the maximum rate value, which will remain for most of the next year, is close. Therefore, the decline of the euro currency should continue. This week, there will be a lot of important reports from overseas, and if they turn out to be weak, the euro may have the opportunity to rise. However, we expect the downward movement to continue in the medium term.
As of August 1st, the average volatility of the euro/dollar currency pair over the last five trading days is 96 points, categorized as “average.” However, such volatility was observed during trading on the previous Thursday. Over the next few days, it may decrease. Therefore, we expect the pair to move between the levels of 1.0888 and 1.1080 on Tuesday. An upward reversal of the Heiken Ashi indicator will indicate a new phase of the corrective movement.
Nearest support levels:
S1 – 1.0986
S2 – 1.0925
S3 – 1.0864
Nearest resistance levels:
R1 – 1.1047
R2 – 1.1108
R3 – 1.1169
Trading recommendations:
Currently, the EUR/USD pair remains below the moving average. Maintaining short positions with targets at 1.0925 and 1.0888 is recommended until the Heiken Ashi indicator shows an upward reversal. Long positions will only be relevant after the price is firmly established above the moving average line, with targets at 1.1080 and 1.1108.
Explanations for the illustrations:
Linear regression channels help in determining the current trend. If both channels are directed in the same direction, it indicates a strong trend.
The moving average line (settings 20.0, smoothed) defines the short-term trend and the trading direction.
Murray levels are the target levels for movements and corrections.
Volatility levels (red lines) represent the probable price channel within which the pair is expected to move in the next 24 hours based on the current volatility indicators.
The CCI indicator: its entry into the oversold zone (below -250) or the overbought zone (above +250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
On August 1st, the EUR/USD currency pair resumed its downward movement following a preliminary correction toward the moving average line. Yesterday’s trading day had the potential to be very interesting for the euro, and it turned out to be just that, as we received two important reports: one on inflation and the other on GDP. However, the market’s reaction was weak, to say the least, as both reports showed values exactly as forecasted. Nevertheless, it’s worth noting that GDP grew by 0.3% in the second quarter, the highest value in the last three quarters, and inflation decreased by 0.2% year-on-year to 5.3%, although this slowdown cannot be considered significant.
The core inflation, which remained unchanged in July, is causing the most concern for the ECB. Overall, inflation remains consistently high, suggesting the possibility of a few more tightening moves in monetary policy. The question is whether the ECB is ready to raise the key rate three or four more times. We have repeatedly stated that this is unlikely.
As a result, the current downward trend continues, and the easing of monetary rhetoric from ECB representatives is working against the euro, which has risen in recent months mainly based on high market rate expectations. The euro has risen too high and should fall lower to restore balance with the US dollar.
Shimkus and Kazimir do not support a rate hike in September.
As we mentioned, signals of a possible pause in September have been emerging recently. This started even before the ECB meeting last week when some monetary committee members began talking about the possibility of skipping a tightening move in September. This view was confirmed by Christine Lagarde, who allowed for a pause at the next ECB meeting. Following the meeting, more ECB members gave speeches, including notable interviews with Peter Kazimir and Gediminas Simkus.
It is important to note that the ECB is the central bank for 27 countries, and naturally, there is no unanimous view on the interest rate. Some local central bank heads support further tightening, while others do not. Therefore, a final decision on the rate has not been made yet, but as they say, “Where there’s smoke, there’s fire.” Gediminas Simkus stated that the central bank is close to the peak rate. What does this mean? It means we can expect, at most, one more rate hike. He suggested that the rate could remain unchanged in September and increase by 0.25% in October. He also noted that the rate is unlikely to be reduced in the first half of 2024, which is logical given the ECB’s less hawkish stance compared to the Federal Reserve or the Bank of England.
His colleague, Peter Kazimir, also mentioned “approaching the peak rate value” and noted that the pause in September would not mean the end of the tightening cycle. He added that the maximum rate value, which will remain for most of the next year, is close. Therefore, the decline of the euro currency should continue. This week, there will be a lot of important reports from overseas, and if they turn out to be weak, the euro may have the opportunity to rise. However, we expect the downward movement to continue in the medium term.
As of August 1st, the average volatility of the euro/dollar currency pair over the last five trading days is 96 points, categorized as “average.” However, such volatility was observed during trading on the previous Thursday. Over the next few days, it may decrease. Therefore, we expect the pair to move between the levels of 1.0888 and 1.1080 on Tuesday. An upward reversal of the Heiken Ashi indicator will indicate a new phase of the corrective movement.
Nearest support levels:
S1 – 1.0986
S2 – 1.0925
S3 – 1.0864
Nearest resistance levels:
R1 – 1.1047
R2 – 1.1108
R3 – 1.1169
Trading recommendations:
Currently, the EUR/USD pair remains below the moving average. Maintaining short positions with targets at 1.0925 and 1.0888 is recommended until the Heiken Ashi indicator shows an upward reversal. Long positions will only be relevant after the price is firmly established above the moving average line, with targets at 1.1080 and 1.1108.
Explanations for the illustrations:
Linear regression channels help in determining the current trend. If both channels are directed in the same direction, it indicates a strong trend.
The moving average line (settings 20.0, smoothed) defines the short-term trend and the trading direction.
Murray levels are the target levels for movements and corrections.
Volatility levels (red lines) represent the probable price channel within which the pair is expected to move in the next 24 hours based on the current volatility indicators.
The CCI indicator: its entry into the oversold zone (below -250) or the overbought zone (above +250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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