Overview of the EUR/USD pair. July 9th. Preview of the week. The euro currency may start a new round of decline
July 9, 2023 1:22 pm
This past Friday, the EUR/USD currency pair exhibited a notable ascent, founded purely on one incident. The NonFarm Payrolls report turned out to be slightly weaker than forecast, which was enough for new sales of the US dollar. At the same time, a positive unemployment report was completely ignored. As a result, the European currency gained about 100 points, but the essence of the movement remained unchanged. The illustration above clearly shows that the pair has been between the 1.0840 and 1.0990 levels in recent weeks. This movement resembles a flat more than we have observed for the past six months on the 24-hour TF. And this is the first reason for a possible drop next week.
If the price is in a flat, it is now approaching the upper boundary of the lateral channel. Hence, a reversal downwards and a drop of 100-120 points are quite likely. Since the volatility is less than desirable, such a distance could be covered in several days. The second reason is the CCI indicator’s entry into the overbought area. Remember, this happens rarely, and it’s almost a 100% sell signal in a flat. If there was a strong trend now, then two or even three such signals could form before a fall began. Therefore, around the Murray level of “4/8”-1.0986, one can expect the pair to reverse downwards and fall.
The third reason is macroeconomics. Since the market reacted illogically to the information about the US labor market, a reversal might begin next week. Remember, the unemployment rate has fallen, and other reports have shown strong results. Only Nonfarm Payrolls was slightly weaker than expected, but even it showed +209 thousand new jobs. More is needed for the US currency to fall 100 points in a few hours.
The calendar in the EU is practically empty
Next week, there will be very few macroeconomic and fundamental events in the European Union. On Tuesday, an inflation report for June in Germany will be released, but this will be the second estimate of the indicator. Hence, a significant deviation from the 6.4% figure is unlikely. Also, the economic expectations index, considered quite important in Germany, will be released and may deteriorate again. On Wednesday, ECB Chief Economist Philip Lane will speak. On Thursday – a report on industrial production. These are all the events planned for the next five trading days.
The market can easily and freely ignore all the events and reports mentioned above. A minimal market reaction is possible, but other data can strongly impact traders. Since the pair is currently in a flat, it may continue for some time, and guessing when and on what event the exit from the lateral channel will occur is pointless. Therefore, we wait for the end of the flat, and at the beginning of the week, we expect a fall in the European currency.
What can Philip Lane tell the markets? Guessing is also pointless. However, it is important for us to understand whether we should expect a vigorous market reaction or whether this event can be disregarded. The European regulator’s position is now clear. The rate will increase by another 0.25% at the next meeting, and various scenarios are possible in the fall and winter, which will depend on incoming data. Inflation in the EU remains so high that the rate needs to be increased for another 5 or 6 meetings, but the ECB’s capabilities are not infinite. Inflation in the US may drop to 3.1% next week, and the Fed still believes that the rate needs to be raised one or two more times. Therefore, Lane’s rhetoric will surely be “hawkish,” but we won’t hear anything fundamentally new.
The average volatility of the euro/dollar currency pair over the last five trading days as of July 10 is 67 points and is characterized as “medium.” Thus, we expect the pair to move between levels 1.0899 and 1.1033 on Monday. The reversal of the Heiken Ashi indicator downward will indicate a new round of downward movement within the flat.
Nearest support levels:
S1 – 1.0925
S2 – 1.0864
S3 – 1.0803
Nearest resistance levels:
R1 – 1.0986
R2 – 1.1047
R3 – 1.1108
Trading recommendations:
The EUR/USD pair continues to be flat. At this time, short positions down 100 points can be considered if a sell signal is formed around the 1.0986 level. Long positions will become relevant no earlier than the price consolidates above the Murray level of “3/8”-1.0986 with targets of 1.1033 and 1.1047.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are directed in one direction, then the trend is strong.
Moving average line (settings 20,0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel the pair will spend the next day, based on current volatility indicators.
CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
This past Friday, the EUR/USD currency pair exhibited a notable ascent, founded purely on one incident. The NonFarm Payrolls report turned out to be slightly weaker than forecast, which was enough for new sales of the US dollar. At the same time, a positive unemployment report was completely ignored. As a result, the European currency gained about 100 points, but the essence of the movement remained unchanged. The illustration above clearly shows that the pair has been between the 1.0840 and 1.0990 levels in recent weeks. This movement resembles a flat more than we have observed for the past six months on the 24-hour TF. And this is the first reason for a possible drop next week.
If the price is in a flat, it is now approaching the upper boundary of the lateral channel. Hence, a reversal downwards and a drop of 100-120 points are quite likely. Since the volatility is less than desirable, such a distance could be covered in several days. The second reason is the CCI indicator’s entry into the overbought area. Remember, this happens rarely, and it’s almost a 100% sell signal in a flat. If there was a strong trend now, then two or even three such signals could form before a fall began. Therefore, around the Murray level of “4/8”-1.0986, one can expect the pair to reverse downwards and fall.
The third reason is macroeconomics. Since the market reacted illogically to the information about the US labor market, a reversal might begin next week. Remember, the unemployment rate has fallen, and other reports have shown strong results. Only Nonfarm Payrolls was slightly weaker than expected, but even it showed +209 thousand new jobs. More is needed for the US currency to fall 100 points in a few hours.
The calendar in the EU is practically empty
Next week, there will be very few macroeconomic and fundamental events in the European Union. On Tuesday, an inflation report for June in Germany will be released, but this will be the second estimate of the indicator. Hence, a significant deviation from the 6.4% figure is unlikely. Also, the economic expectations index, considered quite important in Germany, will be released and may deteriorate again. On Wednesday, ECB Chief Economist Philip Lane will speak. On Thursday – a report on industrial production. These are all the events planned for the next five trading days.
The market can easily and freely ignore all the events and reports mentioned above. A minimal market reaction is possible, but other data can strongly impact traders. Since the pair is currently in a flat, it may continue for some time, and guessing when and on what event the exit from the lateral channel will occur is pointless. Therefore, we wait for the end of the flat, and at the beginning of the week, we expect a fall in the European currency.
What can Philip Lane tell the markets? Guessing is also pointless. However, it is important for us to understand whether we should expect a vigorous market reaction or whether this event can be disregarded. The European regulator’s position is now clear. The rate will increase by another 0.25% at the next meeting, and various scenarios are possible in the fall and winter, which will depend on incoming data. Inflation in the EU remains so high that the rate needs to be increased for another 5 or 6 meetings, but the ECB’s capabilities are not infinite. Inflation in the US may drop to 3.1% next week, and the Fed still believes that the rate needs to be raised one or two more times. Therefore, Lane’s rhetoric will surely be “hawkish,” but we won’t hear anything fundamentally new.
The average volatility of the euro/dollar currency pair over the last five trading days as of July 10 is 67 points and is characterized as “medium.” Thus, we expect the pair to move between levels 1.0899 and 1.1033 on Monday. The reversal of the Heiken Ashi indicator downward will indicate a new round of downward movement within the flat.
Nearest support levels:
S1 – 1.0925
S2 – 1.0864
S3 – 1.0803
Nearest resistance levels:
R1 – 1.0986
R2 – 1.1047
R3 – 1.1108
Trading recommendations:
The EUR/USD pair continues to be flat. At this time, short positions down 100 points can be considered if a sell signal is formed around the 1.0986 level. Long positions will become relevant no earlier than the price consolidates above the Murray level of “3/8”-1.0986 with targets of 1.1033 and 1.1047.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are directed in one direction, then the trend is strong.
Moving average line (settings 20,0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel the pair will spend the next day, based on current volatility indicators.
CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
The material has been provided by InstaForex Company – www.instaforex.com