Overview of the EUR/USD pair. July 25th. No answers should be expected from the ECB
July 25, 2023 8:24 am
On Monday, the EUR/USD currency pair continued its downward movement, and there were sufficient reasons for this. The reason is that business activity indices in the European Union declined at the end of July and declined much more than anticipated, even though these were only preliminary values. Given that the report values can be described as “resonant,” there are no doubts about the euro’s decline. However, it’s essential to remember that such occurrences, like yesterday’s, are infrequent. The market has mostly interpreted macroeconomic statistics based on its preferences rather than adhering to logic and common sense. There is an emerging downward trend, and the euro is so overbought that it has no other option but to continue going down.
However, just a couple of months ago, we expected the euro to fall, but instead, it rose again. If the market is still only seeking buying opportunities, what we observe now could be a simple correction that will end quickly, similar to previous corrections. Moreover, the CCI indicator has entered the oversold zone, suggesting a signal for an upward retracement.
This week, both the ECB and the Fed will hold their meetings. The decisions to be made and announced are already known. However, it does not imply that the market won’t react to these events. Christine Lagarde and Jerome Powell may express certain views that could lead to emotional surges or change their rhetoric compared to previous meetings. Traders will closely monitor all these developments, even though it’s quite apparent in which direction both central banks are moving.
Refrain from expecting specific details from Lagarde.
At the beginning of this week, there was intense speculation about the forthcoming ECB meeting, which concludes on Thursday morning. In light of this event, many experts and analysts have begun asking questions that the ECB is unlikely to answer. Here are some of them:
“How long will the regulator raise rates?” When did Christine Lagarde last attend a press conference and state, “Rates will rise for the next five meetings”? It has simply never happened. The words of the central bank’s chief are always closely scrutinized and significantly influence the markets. Mrs. Lagarde cannot make statements that may not come true or cause turmoil. Therefore, we will need an answer to this question.
“What are the ECB’s plans for autumn?” Another question that falls into the category of unanswered. Even if the ECB considers a pause, it will not be openly announced. Moreover, how can there be talk of a pause when the main inflation remains high, and the core inflation has risen in the last month? We have repeatedly emphasized that the ECB’s options are not unlimited and are much more modest than those of the Bank of England or the Fed. Still, Lagarde is unlikely to openly discuss the inability to continue tightening monetary policy when inflation is far from the target level.
“When does the ECB expect a decrease in core inflation?” Another question to which there is no answer. If predicting future inflation were that easy, there would not have been record-high values. All central banks would have foreseen the rise in the CPI and would not have allowed it to reach double-digit levels. Several more questions keep traders awake, but their answers are roughly identical. Madame Lagarde has repeatedly indicated that decisions will be made based on incoming information from meeting to meeting. This will likely be the rhetoric the head of the ECB will adhere to after the rate hike to 4.25%.
As of July 25, the average volatility of the euro/dollar currency pair over the last five trading days was 73 pips, classified as “average.” Thus, we expect the pair to move between the levels of 1.0999 and 1.1145 on Tuesday. An upward reversal of the Heiken Ashi indicator will indicate a potential upward trend.
Nearest support levels:
S1 – 1.1047
S2 – 1.0986
S3 – 1.0925
Nearest resistance levels:
R1 – 1.1108
R2 – 1.1169
R3 – 1.1230
Trading recommendations:
The EUR/USD pair continues its downward movement; the question is only how long it will continue. It is advisable to remain in short positions with targets at 1.1047 and 1.0999 until the Heiken Ashi indicator reverses upward. Long positions will become relevant only after the price is fixed above the moving average line, with targets at 1.1169 and 1.1230.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are directed in the same direction, it means the trend is strong at the moment.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which the trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – probable price channel in which the pair will move in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the overbought zone (above +250) or oversold zone (below -250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
On Monday, the EUR/USD currency pair continued its downward movement, and there were sufficient reasons for this. The reason is that business activity indices in the European Union declined at the end of July and declined much more than anticipated, even though these were only preliminary values. Given that the report values can be described as “resonant,” there are no doubts about the euro’s decline. However, it’s essential to remember that such occurrences, like yesterday’s, are infrequent. The market has mostly interpreted macroeconomic statistics based on its preferences rather than adhering to logic and common sense. There is an emerging downward trend, and the euro is so overbought that it has no other option but to continue going down.
However, just a couple of months ago, we expected the euro to fall, but instead, it rose again. If the market is still only seeking buying opportunities, what we observe now could be a simple correction that will end quickly, similar to previous corrections. Moreover, the CCI indicator has entered the oversold zone, suggesting a signal for an upward retracement.
This week, both the ECB and the Fed will hold their meetings. The decisions to be made and announced are already known. However, it does not imply that the market won’t react to these events. Christine Lagarde and Jerome Powell may express certain views that could lead to emotional surges or change their rhetoric compared to previous meetings. Traders will closely monitor all these developments, even though it’s quite apparent in which direction both central banks are moving.
Refrain from expecting specific details from Lagarde.
At the beginning of this week, there was intense speculation about the forthcoming ECB meeting, which concludes on Thursday morning. In light of this event, many experts and analysts have begun asking questions that the ECB is unlikely to answer. Here are some of them:
“How long will the regulator raise rates?” When did Christine Lagarde last attend a press conference and state, “Rates will rise for the next five meetings”? It has simply never happened. The words of the central bank’s chief are always closely scrutinized and significantly influence the markets. Mrs. Lagarde cannot make statements that may not come true or cause turmoil. Therefore, we will need an answer to this question.
“What are the ECB’s plans for autumn?” Another question that falls into the category of unanswered. Even if the ECB considers a pause, it will not be openly announced. Moreover, how can there be talk of a pause when the main inflation remains high, and the core inflation has risen in the last month? We have repeatedly emphasized that the ECB’s options are not unlimited and are much more modest than those of the Bank of England or the Fed. Still, Lagarde is unlikely to openly discuss the inability to continue tightening monetary policy when inflation is far from the target level.
“When does the ECB expect a decrease in core inflation?” Another question to which there is no answer. If predicting future inflation were that easy, there would not have been record-high values. All central banks would have foreseen the rise in the CPI and would not have allowed it to reach double-digit levels. Several more questions keep traders awake, but their answers are roughly identical. Madame Lagarde has repeatedly indicated that decisions will be made based on incoming information from meeting to meeting. This will likely be the rhetoric the head of the ECB will adhere to after the rate hike to 4.25%.
As of July 25, the average volatility of the euro/dollar currency pair over the last five trading days was 73 pips, classified as “average.” Thus, we expect the pair to move between the levels of 1.0999 and 1.1145 on Tuesday. An upward reversal of the Heiken Ashi indicator will indicate a potential upward trend.
Nearest support levels:
S1 – 1.1047
S2 – 1.0986
S3 – 1.0925
Nearest resistance levels:
R1 – 1.1108
R2 – 1.1169
R3 – 1.1230
Trading recommendations:
The EUR/USD pair continues its downward movement; the question is only how long it will continue. It is advisable to remain in short positions with targets at 1.1047 and 1.0999 until the Heiken Ashi indicator reverses upward. Long positions will become relevant only after the price is fixed above the moving average line, with targets at 1.1169 and 1.1230.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are directed in the same direction, it means the trend is strong at the moment.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which the trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – probable price channel in which the pair will move in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the overbought zone (above +250) or oversold zone (below -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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