Overview of the EUR/USD pair. June 6th. Representatives of the ECB’s monetary committee maintain a “hawkish” stance
June 6, 2023 6:23 am
The EUR/USD currency pair continued its downward movement on Monday. Not as strong as on Friday, but still a decline. Thus, the pair spent less than a day above the moving average line and now may drop to the last local minimum and continue its movement to the south. We have repeatedly mentioned that we expect a decline in the past two months. And in the last month (when the pair was already actively falling), we constantly repeated that the decline should continue. There have been no grounds for the euro to rise in the past three months, during which it enjoyed active demand. Now it’s time to “repay debts.” The minimum target for the decline is 1.0500.
On the 24-hour timeframe, the pair ended only one day out of the last 25, with a significant increase. It might have seemed that a new upward movement would begin, leading to a resumption of the upward trend, but last Friday and Monday show that such a conclusion is premature. The euro currency rose within the last upward trend by almost 1600 points, which implies a correction of at least 600–700 points. That is, to the range of 1.03–1.04. And because there are no grounds for resuming the movement to the north, these targets look even more convincing.
Thus, we expect the continuation of a calm decline. All the movements of the past months are very similar to consolidation – a type of movement when the pair does not have a clear trend but is not in a flat state either. Consolidation will continue until the first signs of readiness to soften monetary policy from the Fed or the ECB appear.
In principle, everything written below is not “big news.” Over the past few weeks, we have witnessed many speeches by ECB and Fed representatives. And if unexpected information came from anyone, it was from the members of the FOMC. Recall that the market fervently believed that the last planned increase in the key rate in the United States took place in May. However, several Fed representatives immediately indicated that the rate could be raised again in June, and some stated that the regulator could now raise the rate once every two meetings. However, the rate will continue to rise, which the market did not anticipate.
The situation with the ECB and its monetary policy is much simpler. Almost all monetary committee members insist on further tightening, so there is no doubt that the rate will increase by another 0.5% at the next two meetings. However, some analytical agencies and major banks believe that we will see the last rate hike in June, which raises doubts about a rate hike after August 2023. If so, the ECB’s rate will remain much lower than the Fed’s rate, and in 2023, it will increase by approximately the same value. Thus, the euro currency loses the growth factor that could help it in the coming months.
Bostjan Vasle stated last Friday that it is necessary to continue raising the rate to combat high inflation effectively. He also noted that core inflation needs to be higher. His colleague Gabriel Makhlouf confirmed that the ECB intends to continue tightening its monetary policy. He also noted the high level of core inflation and that the end of the tightening cycle has yet to come. Mr. Makhlouf said the current picture is quite blurry, besides the confidence in two more rate hikes.
It is worth adding that the market has long worked out the rate hikes mentioned above. We have already mentioned many times that after slowing down the pace of tightening to a minimum, we can expect three more 0.25% rate hikes. Thus, two rate hikes in June and August are logical and expected. They could have been anticipated several months ago. Therefore, the current “hawkish” sentiment of the ECB representatives does not provide any support for the euro currency. In the 4-hour timeframe, the downward trend is visible. The oversold condition of the CCI indicator has been worked off, so now the pair can continue to decline with a calm mind.
The average volatility of the EUR/USD currency pair over the last five trading days as of June 6th is 81 points and is characterized as “average.” Thus, we expect the pair to move between the levels of 1.0631 and 1.0793 on Tuesday. A reversal of the Heiken Ashi indicator back upwards will indicate a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.0681
S2 – 1.0620
Nearest resistance levels:
R1 – 1.0742
R2 – 1.0803
R3 – 1.0864
Trading recommendations:
The EUR/USD pair has dropped below the moving average line. It is advisable to stay in short positions with targets at 1.0681 and 1.0631 until the Heiken Ashi indicator reverses upward. Long positions will become relevant only after the price firmly reclaims above the moving average line, with targets at 1.0793 and 1.0803.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong trend.
Moving average line (settings: 20.0, smoothed) – determines the short-term trend and direction for trading.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel the pair is expected to trade in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) indicates an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The EUR/USD currency pair continued its downward movement on Monday. Not as strong as on Friday, but still a decline. Thus, the pair spent less than a day above the moving average line and now may drop to the last local minimum and continue its movement to the south. We have repeatedly mentioned that we expect a decline in the past two months. And in the last month (when the pair was already actively falling), we constantly repeated that the decline should continue. There have been no grounds for the euro to rise in the past three months, during which it enjoyed active demand. Now it’s time to “repay debts.” The minimum target for the decline is 1.0500.
On the 24-hour timeframe, the pair ended only one day out of the last 25, with a significant increase. It might have seemed that a new upward movement would begin, leading to a resumption of the upward trend, but last Friday and Monday show that such a conclusion is premature. The euro currency rose within the last upward trend by almost 1600 points, which implies a correction of at least 600–700 points. That is, to the range of 1.03–1.04. And because there are no grounds for resuming the movement to the north, these targets look even more convincing.
Thus, we expect the continuation of a calm decline. All the movements of the past months are very similar to consolidation – a type of movement when the pair does not have a clear trend but is not in a flat state either. Consolidation will continue until the first signs of readiness to soften monetary policy from the Fed or the ECB appear.
In principle, everything written below is not “big news.” Over the past few weeks, we have witnessed many speeches by ECB and Fed representatives. And if unexpected information came from anyone, it was from the members of the FOMC. Recall that the market fervently believed that the last planned increase in the key rate in the United States took place in May. However, several Fed representatives immediately indicated that the rate could be raised again in June, and some stated that the regulator could now raise the rate once every two meetings. However, the rate will continue to rise, which the market did not anticipate.
The situation with the ECB and its monetary policy is much simpler. Almost all monetary committee members insist on further tightening, so there is no doubt that the rate will increase by another 0.5% at the next two meetings. However, some analytical agencies and major banks believe that we will see the last rate hike in June, which raises doubts about a rate hike after August 2023. If so, the ECB’s rate will remain much lower than the Fed’s rate, and in 2023, it will increase by approximately the same value. Thus, the euro currency loses the growth factor that could help it in the coming months.
Bostjan Vasle stated last Friday that it is necessary to continue raising the rate to combat high inflation effectively. He also noted that core inflation needs to be higher. His colleague Gabriel Makhlouf confirmed that the ECB intends to continue tightening its monetary policy. He also noted the high level of core inflation and that the end of the tightening cycle has yet to come. Mr. Makhlouf said the current picture is quite blurry, besides the confidence in two more rate hikes.
It is worth adding that the market has long worked out the rate hikes mentioned above. We have already mentioned many times that after slowing down the pace of tightening to a minimum, we can expect three more 0.25% rate hikes. Thus, two rate hikes in June and August are logical and expected. They could have been anticipated several months ago. Therefore, the current “hawkish” sentiment of the ECB representatives does not provide any support for the euro currency. In the 4-hour timeframe, the downward trend is visible. The oversold condition of the CCI indicator has been worked off, so now the pair can continue to decline with a calm mind.
The average volatility of the EUR/USD currency pair over the last five trading days as of June 6th is 81 points and is characterized as “average.” Thus, we expect the pair to move between the levels of 1.0631 and 1.0793 on Tuesday. A reversal of the Heiken Ashi indicator back upwards will indicate a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.0681
S2 – 1.0620
Nearest resistance levels:
R1 – 1.0742
R2 – 1.0803
R3 – 1.0864
Trading recommendations:
The EUR/USD pair has dropped below the moving average line. It is advisable to stay in short positions with targets at 1.0681 and 1.0631 until the Heiken Ashi indicator reverses upward. Long positions will become relevant only after the price firmly reclaims above the moving average line, with targets at 1.0793 and 1.0803.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong trend.
Moving average line (settings: 20.0, smoothed) – determines the short-term trend and direction for trading.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel the pair is expected to trade in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) indicates an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: