01.07.202103:19 Forex Analysis & Reviews: Overview of the EUR/USD pair. July 1. The labor market and inflation as the main factors for the success of the American currency.

4-hour timeframe

Technical details:

Higher linear regression channel: direction - sideways.

Lower linear regression channel: direction - downward.

Moving average (20; smoothed) - downward.

CCI: -236.8266

The EUR/USD currency pair continued to trade with low volatility on Wednesday, June 30, although several quite interesting macroeconomic publications were planned for this day. However, the markets, although they did not completely ignore them, nevertheless reacted very weakly. However, we already said at the weekend that a very weak movement of the pair would persist for most of the trading days of this week. In practice, this is how it turns out. Although the dollar has been growing for several weeks, there is still a feeling that its strengthening is random. There is a feeling that the buyers of the pair did not have the desire and strength to continue the upward trend a few weeks ago, so they temporarily withdrew from the market, allowing the bears to get enough. However, they can start attacking again at any moment, returning the pair to its three-year highs. The same applies to fundamental factors. By and large, the overall macroeconomic picture has not changed in any way recently. The fact that the American economy is recovering from the crisis faster than the European one is no secret to anyone. And there were no secrets a few weeks ago and a few months ago. We have repeatedly cited GDP data for recent quarters, which eloquently show that the European economy was contracting in most cases. When it was growing, this growth was weaker than in the United States. At this time, absolutely nothing has changed.

The same applies to monetary stimulus in the ECB and the Fed. The volume of purchases under the economic stimulus programs remained unchanged, and the central banks themselves did not announce clear plans to complete the stimulus. Thus, it is quite difficult to explain the strengthening of the US currency. Recall that the fall in the pair's quotes began after the Fed meeting, at which many market participants noticed "hawkish" hints. From our point of view, these hints are not a reason for buying the US currency, so that it grows by 250-300 points. However, the markets decided otherwise. Even taking into account the first two days after the Fed meeting, when the pair went down about 250 points, in total, the US currency has added about 410 points in recent weeks. If you remove the Fed meeting and its reaction, the US currency rose by 160 points, which is very difficult to call even a correction against the short-term trend. Before the Fed meeting, the pair was at the level of 1.2120, only 150 points from its local highs. Thus, the US currency is growing very reluctantly, and the bears are still very weak.

The latest data from COT reports show that the mood of major players has become sharply less "bullish," but at the same time, the "bullish" mood persists. Thus, from our point of view, the only factor supporting the US currency is the correction factor on the 24-hour timeframe. We have already said that corrections often take place in several waves. According to the classics – in three waves. Accordingly, if we assume that everything will be exactly like this now, then the third wave started on May 25, which can lower the pair to the previous minimum or slightly lower. Based on this moment, we believe that the quotes may fall to the level of 1.1700. However, it is unlikely to be much lower.

Meanwhile, data on the labor market state began to be published in the States this week. Recall that the Fed highlights the labor market as its main goal at almost all its meetings. The second most important indicator is inflation. However, the recent speeches of Jerome Powell made it clear that the labor market is more important, and no one is going to control inflation. Moreover, representatives of the ECB, the Bank of England, and the Fed have repeatedly stated that the increase in inflation in recent months is a temporary factor. Theoretically, in the States, it can decrease to 3-3.5%. This value is also much higher than the target. However, it is not critical since Powell said last year that inflation would be allowed to go above 2% to compensate for periods of low inflation. Thus, we can conclude that no one in the States is going to control inflation. But the labor market is the most contradictory field. The labor market is recovering too raggedly. Although the indicators of Nonfarm Payrolls and ADP in the last six months regularly turn out to be positive, their figures often disappoint traders. It should be understood that there are indicators that show new jobs in the United States. However, there are no similar indicators that would show the disappearance of jobs. But companies can go bankrupt, and employees can be reduced or dismissed. But we can only analyze data on the number of new jobs or changes in the number of employees in the private sector. Hence, the conclusion is that for a growing American economy, 200-300 thousand jobs in the Nonfarm Payrolls or ADP report is the necessary minimum. After the crisis, these figures should be much higher for the US economy to claim a real recovery. For example, in April 2020, the Nonfarm index decreased by 20 million, and the maximum growth after this month was almost 5 million. In the last few months, the increase is about 500 thousand on average. Hence, the conclusion is that the labor market is recovering at a completely different pace than the Fed and the public expect from it. The same applies to the ADP report, which also shows an increase in the number of employees, but not the values correlated with the definition of "rapid economic recovery."

Meanwhile, hundreds of billions of dollars continue to pour into the American economy, stimulating demand, business activity, production. However, many Americans are still out of work, and some feel great about unemployment benefits. Therefore, the labor market will recover for at least another year.

The volatility of the euro/dollar currency pair as of July 1 is 50 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.1804 and 1.1904. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward correction.

Nearest support levels:

S1 – 1.1841

S2 – 1.1780

S3 – 1.1719

Nearest resistance levels:

R1 – 1.1902

R2 – 1.1963

R3 – 1.2024

Trading recommendations:

The EUR/USD pair continues to move down. Thus, today it is recommended to stay in short positions with targets of 1.1804 and 1.1780 until the Heiken Ashi indicator turns up. It is recommended to open buy orders no earlier than fixing the price above the moving average line and the Murray level "4/8" with targets of 1.1963 and 1.2024.