The EUR/USD currency pair showed rather weak volatility and a lack of desire to trade actively on Thursday. The pair continues to be located above the moving average line, that is, it maintains an upward trend. But at the same time, the upward momentum has somehow withered in the last few days. There is a feeling that traders have adjusted the pair, as the "technique" required for a long time, and now they are thinking about new sales. We have already said that neither the geopolitical nor the fundamental background has changed dramatically over the past few weeks. So, if the euro currency has been falling for several months on these backgrounds (not counting all the time that it fell before on other factors), then why should it suddenly grow now? Of course, no instrument can constantly move in one direction. Of course, the current correction in global terms looks like a mockery of the euro currency. Nevertheless, it can hardly be denied that the European Union now has serious economic problems.
Yes, it is the European Union, and not the States, where GDP in the first quarter has already decreased by 1.5%, as the second estimate showed yesterday. Nevertheless, it is the United States that now looks like an island of stability in our "crazy world". Despite the fall in GDP, the Fed is still confident that no recession threatens the economy. The minutes of the Fed meeting indicate that the plans are unchanged and the rate will be raised to 2% this summer. Jerome Powell shines with confidence that everything will be fine. But the ECB takes the opposite position. It all started with the demarche of Luis de Guindos, who announced a month ago the possible rate hike this summer. Christine Lagarde stubbornly ignored this topic for two weeks, but then she gave up and confirmed that rates could become positive in the third quarter. Her reluctance to raise the rate is visible to the naked eye, but what else can she do if inflation soon catches up with the American one? The GDP growth rates in the European Union are minimal, but they can very quickly become negative if the ECB raises the rate at least to zero. Thus, it is the European Union that now looks as weak and uncertain as possible.
Inflation is becoming uncontrollable for central banks.
In the last month, the information field of the foreign exchange market has been overflowing with data on the monetary policy of the Fed and the ECB. Recall that at first, they talked about three rate hikes in 2022, then about five, then about raising the rate at each meeting, at a rate higher than +0.25% at each of them. Now the reverse dynamics have started. Experts and members of the Fed are already inclined to take a break at 2%, but they do not deny that the rate will probably have to be raised more. James Bullard is sure that this year the rate needs to be urgently increased to 3.5%, and in the next two years to drink tea, watching how inflation is falling, and gradually reduce the rate to a neutral level. In general, there are a huge number of opinions on the market and, of course, ordinary traders can hardly now predict exactly how events will proceed if the Fed itself cannot decide on this.
The situation at the ECB is even more fun. Europe is on the verge of a food crisis and the world has already begun to actively deal with the issue of organizing the export of wheat and other crops from Ukraine, where the military conflict continues. That is, the issue of food is now very acute for the whole world. Of course, Europe will not starve, but the shortage of food will lead to what? That's right, to an increase in prices for these very products. That is, again, inflation. The situation with fuel, oil, and gas is even more interesting. The European Union can no longer "change shoes" and refuse to impose an oil embargo. It seems that most of the EU countries are currently praying for Hungary since it is Hungary that is blocking the introduction of the embargo. It turns out that Hungary is to blame for everything, and the benefit is for everyone. Nevertheless, the electorate demands the rejection of energy carriers from the Russian Federation, so the EU political forces have nowhere to retreat. Germany has already stated that it does not care about the opinion of Hungary, it will refuse oil from Russia before the end of the year without it. All this means that oil prices may rise even more and pull up prices for everything else.
The average volatility of the euro/dollar currency pair over the last 5 trading days as of May 27 is 93 points and is characterized as "high". Thus, we expect the pair to move today between the levels of 1.0630 and 1.0816. The reversal of the Heiken Ashi indicator downwards signals a new round of corrective movement.
Nearest support levels:
S1 – 1.0620
S2 – 1.0498
S3 – 1.0376
Nearest resistance levels:
R1 – 1.0742
R2 – 1.0864
R3 – 1.0986
Trading recommendations:
The EUR/USD pair continues to be located above the moving average and continues to form an upward trend. Thus, now you should stay in long positions with targets of 1.0816 and 1.0864 until the Heiken Ashi indicator turns down. Short positions should be opened with a target of 1.0498 if the price is fixed below the moving average line.
Explanations of the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
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 spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
