19.04.2024 07:17 AM
Overview of the EUR/USD pair on April 19th. Jerome Powell crushed all euro growth prospects

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The EUR/USD currency pair continued to correct on Thursday and tested the moving average line at some point during the day. Thus, the current week can be considered fully corrective. In addition to the corrective status, weekly movements were very weak. The previous week slightly relieved traders, allowing them to see the normalization of volatility levels. However, by Tuesday, it was clear that these dreams would not come true. There were few macroeconomic statistics this week, and the only important event was Jerome Powell's speech, which the market, in its best traditions, ignored.

To say that the European currency has been trading illogically in recent weeks would be incorrect. After all, it is still moving downward, as it should. However, we have become accustomed to much more volatile movements, and seeing movements of only 30–40 points has become unusual. Unlike the British currency, which remains flat even after exiting the flat, the euro is trending. Just very weakly. This week, for example, a correction was expected after the previous week's events. But even a week earlier, the market blatantly ignored strong data on the US labor market and unemployment. The market is trading logically, but it's not fully committed. It is still hoped that the Fed will start easing monetary policy on schedule and that the ECB will postpone the first easing at the last moment.

However, Fed Chair Jerome Powell effectively dashed all hopes of the most optimistic supporters of the European currency this week. He clearly and unequivocally stated that progress in reducing inflation has stalled, so there should be no expectations of policy easing in June. Of course, we added the second part of the sentence ourselves, as Powell is not known for such open and direct statements. However, it is obvious that if even the head of the Fed acknowledges the lack of inflation reduction, then what talk can there be of rate cuts?

At the same time, almost all ECB representatives are already speaking in unison about easing policy in June. Thus, the ECB will begin to lower the rate at the meeting and will likely adhere to the pace of "one cut in two meetings." When the Fed starts lowering the rate, the ECB may lower theirs to below 4%. Therefore, the conclusion from all this is very simple. Only when the Fed starts signalling readiness to start easing monetary policy will there be no need to even dream of the euro's growth.

To be even more precise, the European currency could start a new upward trend tomorrow. All it takes is for the market to buy it against its fundamental and macroeconomic background. From the example of the British pound, we know perfectly well that such a scenario is possible. However, our analytical articles strive to draw conclusions and forecasts based on specific factors, news, trends, and global events. We cannot account for central bank currency interventions or market makers' refusal to buy or sell a currency for their reasons. Therefore, all factors indicate that the EUR/USD pair will continue to fall. However, major players still need to adhere to the same viewpoint.

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The average volatility of the euro/dollar currency pair over the last 5 trading days as of April 19th is 59 points and is characterized as "average." We expect the pair to move between the levels of 1.0602 and 1.0720 on Friday. The senior linear regression channel is still sideways, but the downward trend persists. The CCI indicator has entered the oversold zone, but we expect only a small upward retracement, which may already be completed.

Nearest support levels:

S1 - 1.0620

S2 - 1.0559

S3 - 1.0498

Nearest resistance levels:

R1 - 1.0681

R2 - 1.0742

R3 - 1.0803

Trading recommendations:

As we expected, the EUR/USD pair has resumed and continues its downward trend. The European currency should continue to decline almost in any case, so we continue to consider selling with targets at 1.0559 and 1.0498. Buying is considered impractical even in price consolidation above the moving average line. The fundamental background suggests that growth can only be expected from the dollar.

Explanations for illustrations:

Linear regression channels - help determine the current trend. If both point in the same direction, the trend is strong.

The 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 in which the pair will move in the next day, based on current volatility indicators.

CCI indicator - its entry into oversold territory (below -250) or overbought territory (above +250) indicates that a trend reversal in the opposite direction is approaching.

Paolo Greco,
Analytical expert of InstaTrade
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