15.07.202403:43 Forex Analysis & Reviews: Overview of EUR/USD on July 15. The ECB meeting could be a turning point for the euro, but it's unlikely

EUR/USD continued its positive trading on Friday, which seems inappropriate. The market has decided that they don't want to pay attention to the dollar after a series of disappointing U.S. reports, and now it can practically find any reason to buy the pair. One cannot claim that this is illogical since the U.S. has actually released disappointing reports in recent months. However, we still believe that the euro should not show new positive trades each and every time. The macroeconomic background is good, but there is also a fundamental background. And everything about this remains unfavorable for the single currency. The main point is the market continues to ignore the interest rate factor. The European Central Bank has already started lowering its borrowing costs, and during the remaining part of the year, it will continue to do so almost in any case. Experts believe that the ECB will carry out at least two more rate cuts by the end of the year.

As for the Federal Reserve, everything remains unclear. Inflation in the U.S. has fallen to 3%, and the market immediately assumed that a key rate cut in September was a done deal. It thought the same in March and then in June. Let us keep in mind that the ECB only began easing monetary policy after inflation fell to 2.4%. The Bank of England currently has inflation at 2% and is in no hurry to cut rates. Therefore, it is very difficult for us to explain why the market is almost 100% certain that the easing cycle will begin in September.

Even the Fed representatives themselves say that the maximum number of rate cuts for this year is either one or two. Fed Chair Jerome Powell repeatedly says that they will not cut interest rates until they have gained even greater confidence that inflation is headed back to the central bank's 2% target. But the market only sees and hears what it wants. For instance, last week it "heard" Powell's words about the threat of a severe economic slowdown and cooling economic activity, as well as an overheating labor market, which might force the Fed to start lowering rates sooner. At the same time, the market did not hear Powell's words that the economy and the labor market are fine at the moment. Now the market is pricing in about a 90% chance of a September rate cut. And we fear that the market might be disappointed once again in September.

This week, there will be an ECB meeting, but no one expects the central bank to make crucial decisions right now. Nevertheless, the EUR/USD pair currently has a vast number of possible scenarios. Considering the growth in recent weeks and months, the price may break through the last local high at 1.0917 and follow this move with a new decline. The market may also continue to show more bullish bias for no particular reason or they could simply invent different reasons. In any case, we cannot recommend long positions to anyone right now, as the probability of a fall remains high.

The average volatility of the EUR/USD pair over the last five trading days as of July 15 is 43 pips, which is considered a very low value. We expect the pair to move between 1.0863 and 1.0949 on Monday. The higher linear regression channel is directed upwards, but the global downward trend remains intact. The CCI indicator entered the overbought area, which is the "first sign" of a trend change.

Nearest support levels:

S1 - 1.0864

S2 - 1.0803

S3 - 1.0742

Nearest resistance levels:

R1 - 1.0925

R2 - 1.0986

R3 - 1.1047

Trading Recommendations:

EUR/USD maintains a global downtrend, while it continues to rise on the 4-hour timeframe. In previous reviews, we said that we expect a continuation of the global downtrend. However, at this time we can't deny that the euro is rising again due to comprehensible reasons. Unfortunately, both the market and macro data are against the dollar at the moment. We believe that the euro cannot start a new global trend right now when the ECB eases its monetary policy, so most likely the pair will continue to fluctuate between the levels of 1.0650 and 1.1000. Traders may opt for short positions in the upper part of this range and after the price consolidates below the moving average. Targets are around the 1.0681 level.

Explanation of the chart:

• Linear Regression Channels – Helps determine the current trend. If both are directed in the same direction, it means the trend is currently strong.
• Moving Average Line (settings 20.0, smoothed) – Determines the short-term trend and the direction in which trading should currently be conducted.
• Murray Levels – Target levels for movements and corrections.
• Volatility Levels (red lines) – The probable 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 the overbought area (above +250) means that a trend reversal in the opposite direction is imminent.