12.06.202307:22 Forex Analysis & Reviews: Overview of the EUR/USD pair. June 12. The ECB meeting should take place without surprises

From a technical standpoint, an upward correction was anticipated as the pair had declined for the past month. Therefore, any corrective rise is reasonable, even without significant fundamental support. However, two important factors should be acknowledged. First, this week will see meetings of the Federal Reserve (Fed) and the European Central Bank (ECB) and the release of the US inflation report. Hence, movements may be strong and unpredictable. Second, the euro and the pound are moving in different directions, and it is unclear which one has "lost its way in the forest."

It is unlikely to be the European currency, as its recent movements appear logically sound. The euro has been overbought for a considerable time and has risen without substantial reasons. The oversold condition of the CCI indicator has mostly been worked off, indicating that nothing is preventing the pair from resuming its downward trend. The overall decline of the pair over the past month and a half is insufficient to declare a return to balance between the dollar and the euro. Looking at the 24-hour timeframe, it becomes evident that the pair should continue its correction. COT reports have warned of the end of the upward trend for several months, and there are no grounds for further appreciation of the Eurozone currency. Thus, all factors indicate that the pair should resume its southward movement.

Undoubtedly, there will be significant events during the week that could trigger unexpected reactions. Moreover, unlike the ECB, we are still determining what decision the Federal Reserve will make. Therefore, by the end of the week, the pair could end up anywhere. However, overall, a decline in quotes should continue.

The only potential "surprise" could come from Lagarde.

In the European Union, there are few truly important events. The only notable events include the industrial production report on Wednesday, the ECB meeting on Thursday, and the final inflation report on Friday. However, industrial production needs a stronger report to anticipate a market reaction, and the inflation report is the second estimate, which typically does not differ significantly from the first one. Therefore, the ECB meeting will be the traders' main interest.

There is no need to expect anything unexpected from the ECB. Over the past two weeks, all members of the Monetary Committee have spoken, unanimously stating that the rate should continue to be raised. Thus, the market does not doubt that the European regulator will increase the rate by another 0.25% in June, and this increase has long been priced in. The same goes for the subsequent rate hike, which could be the final one. The ECB rate can only rise to 4.25%, while the Bank of England and the Federal Reserve rates are already much higher. This may be the reason for the euro's weakness in recent months.

However, this assumption is only partially accurate, as the US dollar has declined for 9-10 months, despite having the highest interest rate. Thus, the ECB meeting results will not greatly affect traders' sentiment. Christine Lagarde will speak at the press conference afterward and may indicate how long the tightening will last. However, it should be noted that inflation in some EU countries has already dropped significantly, suggesting that tightening should be halted for them. The ECB needs to consider the interests of all 27 Alliance countries, so its rate is likely to stay the same. In 2007-2008, the ECB's maximum rate was 4.25%, the Federal Reserve's rate exceeded 5%, and the Bank of England's rate almost reached 6%. A similar situation could occur in 2023. Therefore, it isn't easy to expect further growth from the European currency.

In the 24-hour timeframe, the pair must stay below the Senkou Span B line (below the Ichimoku cloud). If this condition is met, the downward movement will almost certainly resume.

The average volatility of the EUR/USD currency pair over the past five trading days, as of June 12, is 66 pips and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0683 and 1.0815 on Monday. A reversal of the Heiken Ashi indicator back upwards indicates a new upward movement phase.

Nearest support levels:

S1 - 1.0742

S2 - 1.0681

S3 - 1.0620

Nearest resistance levels:

R1 - 1.0803

R2 - 1.0864

R3 - 1.0925

Trading recommendations:

The EUR/USD pair has settled above the moving average line, but its presence in this area may be short-lived. New long positions should be considered with targets at 1.0803 and 1.0815 in case of a reversal of the Heiken Ashi indicator upwards or a bounce from the moving average. Short positions will become relevant again only after the price firmly moves below the moving average line, with a target at 1.0681.

Explanations for the illustrations:

Linear regression channels - help determine the current trend. If both move in the same direction, it indicates a strong trend.

Moving average line (settings 20,0, smoothed) - determines the short-term trend and the direction in which trading should be conducted.

Murray levels - target levels for movements and corrections.

Volatility levels (red lines) - the probable price channel the pair is expected to trade in the next day based on current volatility indicators.

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