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The EUR/USD currency pair showed a relatively strong rise on Friday, considering the fundamental and macroeconomic backdrop available to traders. In short, the reports were weak—both in terms of significance and actual data. The Eurozone had no notable reports, yet the euro began to appreciate almost from the morning. Meanwhile, U.S. reports were entirely secondary, although many experts consider the PCE Index crucial and key for the Federal Reserve. However, we do not share this view, especially immediately after the release of the inflation report and the Fed meeting. The Fed has made its position very clear for the next 12 months: 1-2 rate cuts, no more. Therefore, the PCE index holds little importance but could become relevant in a few months when the Fed fully pauses its monetary policy easing and revisits the rate decision.
Thus, we view Friday's euro rally as illogical. Looking at the broader technical picture, it's clear that the euro has been declining for quite some time, with corrections being weak and infrequent. We cannot rule out the possibility of a new correction this week. It's essential to note that the Christmas and New Year holidays are beginning worldwide, which may significantly reduce volatility, leading to flat movements. However, holidays don't guarantee that the market will remain static. In a "thin" market (when participant activity and numbers decrease substantially), a significant position opened by a large market maker could trigger a sharp drop or a strong rally in the pair. The question remains—will such a market maker emerge?
This week, no significant events or reports are scheduled in the Eurozone, leaving nothing substantial to analyze. A few reports will be published in the U.S., but it's also worth noting that many platforms and exchanges will be closed during the holidays, meaning interbank trading will not occur. As such, we anticipate that the market will primarily exhibit flat or unpredictable movements for the remainder of the year.
From a technical standpoint, the pair has so far corrected to the moving average, and as long as it remains below this level, any hopes of a sustained euro rally are unfounded. On higher timeframes, the downtrend persists, making downward movement the preferred scenario.
The average volatility of the EUR/USD currency pair over the last five trading days as of December 23 is 91 pips, characterized as "moderate." We expect the pair to move between the levels of 1.0338 and 1.0520 on Monday. The higher linear regression channel is directed downward, indicating that the global downtrend remains intact. The CCI indicator has again entered the oversold area amid significant declines, which primarily signals a potential correction.
Nearest Support Levels:
S1 – 1.0376
S2 – 1.0254
S3 – 1.0132
Nearest Resistance Levels:
R1 – 1.0498
R2 – 1.0620
R3 – 1.0742
The EUR/USD pair may continue its downward trend. For months, we have consistently indicated expectations of declines in the euro over the medium term, and we fully support the broader bearish direction. The probability that the market has already priced in all future Fed rate cuts is high. Therefore, the dollar still has no reasons for a medium-term decline, even though these were scarce.
Short positions remain relevant with targets at 1.0338 and 1.0254 as long as the price remains below the moving average. If you trade using "pure" technical analysis, long positions could be considered if the price moves above the moving average, with a target of 1.0620. However, we would not recommend long positions at this time.
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.
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