The EUR/USD currency pair continued to trade with low activity on Tuesday. At least five reports could have drawn traders' attention throughout the day. However, morning reports from Germany and the Eurozone didn't attract much interest from the market, as they were secondary in importance. While indices like the Business Climate Index and ZEW reports are intriguing, they are not impactful enough to trigger a 50-pip movement. As for U.S. reports, they did elicit a reaction, but it was far from significant.
We believe a more significant event occurred on Monday, albeit with a caveat that "important" applies only loosely. Christine Lagarde gave another speech. It's no secret that central bank heads rarely make genuinely impactful statements. This is because monetary policy or the approach to it resembles the Titanic in the middle of the Atlantic Ocean—it turns very slowly because it has to. Thus, rapid and decisive changes in central bank policy or rhetoric are rare, occurring perhaps once every 10 years during major crises.
More often, traders must extract individual phrases or words from an entire speech to determine whether a central bank's stance has shifted. So, what did Lagarde convey to the market? She reiterated that the central bank is prepared to continue easing monetary policy. In other words, the European Central Bank believes that inflation continues to decline while economic growth remains extremely weak. Addressing both issues will require further rate cuts. Lagarde also stated that "the worst times are behind us." Therefore, it is clear that policy easing will proceed under almost any circumstances.
Based on this, we believe that the euro's decline will persist. The pair is in a corrective phase, though even this appears to have concluded over the past week. It's worth noting that dramatic or rapid market movements are relatively rare. For example, resuming a downward trend does not mean the price will drop 100 pips daily. The decline may be as smooth and gradual as possible.
Additionally, the ECB is anticipating a further significant economic slowdown and a potential trade war with the U.S. in 2025. It's also essential to note that downward trends persist across all timeframes, and no fundamental reasons remain for a substantial rise in the euro. We believe the decline could easily continue to the recent local low this week. The targets remain unchanged in the $1.00–$1.02 range.
The average volatility of the EUR/USD currency pair over the last five trading days as of December 18 is 60 pips, characterized as "average." We expect the pair to move within the range of 1.0441–1.0561 on Wednesday. The higher linear regression channel points downward, indicating that the global downward trend remains intact. The CCI indicator has entered the oversold area several times, triggering an upward correction that is still ongoing.
Nearest Support Levels:
- S1 – 1.0376
- S2 – 1.0254
- S3 – 1.0132
Nearest Resistance Levels:
- R1 – 1.0498
- R2 – 1.0620
- R3 – 1.0742
Trading Recommendations:
The EUR/USD pair could resume its downward trend at any time. Over the past few months, we have consistently stated that we expect the euro to decline in the medium term and continue to support the overall bearish trend fully. There is a high probability that the market has already priced in most, if not all, of the Federal Reserve's anticipated rate cuts. Thus, there remain no significant reasons for a medium-term decline in the dollar, as there were few to begin with.
If the price remains below the moving average, short positions can be considered, with targets at 1.0441 and 1.0376. If the price is above the moving average, long positions may be considered, with targets at 1.0561 and 1.0620, though we currently do not recommend opening longs. Additionally, the pair has been trading in a flat range for the past three weeks.
Explanation of Illustrations:
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company - www.instaforex.com
