27.12.202404:01 Forex Analysis & Reviews: Overview of EUR/USD Pair: December 27; The Holidays Continue

The EUR/USD currency pair experienced stagnation on Thursday, showing minimal trading activity and little to no price movement. While this scenario doesn't ensure that the pair will remain inactive until January 2, it is important to note that sharp movements could still occur. However, predicting such movements without fundamental or macroeconomic factors is quite challenging, in our view. The primary influence at this time is the holiday season. Many traders tend to take a break to celebrate and relax during the holidays, which leads to a flat market. Therefore, we anticipate little movement, and if any occurs, it may be wise not to react impulsively.

An alternative strategy might involve short positions, as the downward trend remains intact, and the price on the 4-hour timeframe is still below the moving average. Therefore, selling the pair, which we believe has only one likely direction—downward—can be done with a Stop Loss, for example, slightly above the moving average. However, this approach carries risk and should be undertaken at each trader's discretion. Overall, we recommend waiting for the new year, when market participants will resume active trading.

In the upcoming year, particularly in the first and second quarters, we expect to see further declines in the euro. Fundamentally, the situation remains unchanged, and the dollar's position has actually strengthened. The Federal Reserve has clearly communicated to the market that it anticipates a maximum of two interest rate cuts next year. Meanwhile, the European Central Bank has expressed its intention to continue lowering rates due to concerns about weak economic growth. The Bank of England is just beginning its process of monetary easing, and it will inevitably have to lower rates, whether it desires to or not.

Lastly, one critical factor we have highlighted for 2024 is that the market has already priced in a full cycle of Federal Reserve monetary easing with a significant margin. Therefore, it is highly likely that the Fed will not reduce rates to the levels that the market has already accounted for.

The average volatility of the EUR/USD currency pair over the last five trading days is 58 pips, which is classified as "average." We expect the pair to fluctuate within the range of 1.0350 to 1.0466 on Friday. The higher linear regression channel remains downward, which aligns with the overall bearish trend. The CCI indicator has once again entered the oversold zone amid a sharp decline, signaling a potential correction at most.

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 is anticipated to continue its downward trajectory. For several months, we have consistently indicated that a decline in the euro should be expected in the medium term, and we fully support the overall bearish direction. The likelihood that the market has already priced in all potential future Fed rate cuts is very high. As a result, the dollar currently has no reason to exhibit medium-term weakness, as there are few factors supporting such a move.

Short positions remain relevant, with targets set at 1.0350 and 1.0254, as long as the price stays below the moving average. If trading purely based on technical analysis, long positions may be considered if the price exceeds the moving average, targeting 1.0620. However, we do not recommend long positions at this time.

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.