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The currency pair extended its descent on Friday and found itself near the Murray level "5/8"-1.0864. Since the moving average line was previously surpassed, we can now reasonably anticipate a continuation of the downward movement. It's worth recalling that we have been expecting a decline from the pair for several weeks, deeming the recent upward surge excessive and partly unwarranted. The European currency has had virtually no support during this time, except for occasional weak data from the United States.
Yes, the statistics from across the ocean have been disappointing in the last month, but it's important to note that economic data from the European Union is no better and, in some cases, worse. Thus, several unsatisfactory reports from America cannot be the basis for a new upward trend. For example, only two reports that truly deserved attention were published last week: the stronger-than-expected GDP in the third quarter for the U.S. and the weaker-than-expected ISM business activity index. The pair's decline began last week, indicating a market reaction to the macroeconomic background.
However, such a situation is observed almost every week. Reports are released, and not all of them work against the dollar. Not all of them support the euro. Yet, the movement of the past few weeks seems as if all incoming data only supports the euro. The CCI indicator reluctantly discharged to the oversold area, so an upward trend could theoretically resume.
Another ineffectual statement from the ECB
On Friday, another ECB monetary committee member, Joachim Nagel, the head of the Bundesbank, shared his opinion. He stated that despite the drop in inflation to 2.4% in the EU, it is still too early to declare victory over inflation. Nagel mentioned that inflation would continue to decrease in the Eurozone but slower than before. He also emphasized that base inflation, which remains too high, decreases much less willingly, and there is still work to be done.
Nagel also believes that the final stage of combating high inflation will be the most challenging. "The geopolitical situation continues to deteriorate, which could cause a new price surge. I cannot confidently say that interest rates have reached their peak. We make decisions on rates at each meeting," said the head of the Bundesbank.
As we can see, there were no words about a possible rate hike by the ECB or a cut. Essentially, nothing new was heard. The ECB and the Fed continue to make decisions based on incoming data from meeting to meeting. Therefore, the euro and the dollar currently have an advantage over their competitors. We expect the pair to decline this week, as it has already risen significantly, and there is no reason for the euro to continue moving upward.
The average volatility of the EUR/USD currency pair over the last five trading days as of December 4 is 71 points and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0812 and 1.0954 on Monday. An upward reversal of the Heiken Ashi indicator will indicate a possible resumption of the upward trend.
Nearest support levels:
S1 – 1.0864
S2 – 1.0742
S3 – 1.0620
Nearest resistance levels:
R1 – 1.0986
R2 – 1.1108
R3 – 1.1230
Trading recommendations:
The EUR/USD pair has settled below the moving average line, allowing traders to open short positions. Currently, staying short with targets at 1.0812 and 1.0742 is reasonable. Even if the current downward movement is a correction, the price must drop at least a hundred points before resuming its rise. As for buying, they can be considered if the price consolidates above the moving average or with the formation of strong signals on the 24-hour TF. Targets are at 1.0986 and higher.
Explanations for the illustrations:
Linear regression channels help determine the current trend. If both are directed in one direction, the trend is strong.
The moving average line (settings 20.0, smoothed) determines the short-term trend and the direction in which trading should be conducted.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) represent the likely price channel 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) indicates that a trend reversal in the opposite direction is approaching.
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