12.01.202313:02 Forex Analysis & Reviews: EUR/USD. Overview for January 12, 2023

On Wednesday, the EUR/USD currency pair traded rather passively and did not start a downward correction. So, as painful as it would be to state it, the market has once again become sensitive to purchases of the euro, which are extremely challenging to understand from the perspective of the fundamental or macroeconomic background. Remember that there was not a single significant incident in the United States or the European Union on Monday, Tuesday, or Wednesday. That is to say, it is exceedingly challenging to comprehend why purchases of the euro persist after a completely nonsensical Friday. Following the release of the labor market and unemployment statistics, the US dollar was forecast to increase but instead dropped by 150 points. The first three for the euro were unchanged this week. Is there anything additional to say at this point regarding the logic of movements? Recall that the movements started to appear illogical around the beginning of December. Even back then, it was clear that the euro was expanding far too quickly and severely, deviating completely from theory and macroeconomics. The growth has continued for a month, and the pair haven't even been able to adapt downward properly throughout that period.

One event this week may have piqued traders' curiosity. On Tuesday night, Jerome Powell gave a speech, but it had no new information for traders. Powell had no intention of discussing monetary policy before today's anticipated release of the inflation data. Additionally, Powell frequently adopts a cautious stance in principle. Therefore, even if he had made a few remarks about the Fed's policy, they would have been little changed from his earlier remarks.

You will need to consider this given that the euro/dollar pair has been increasing for a considerable amount of time while frequently oblivious to the macroeconomic background. Remember that we always recommend trading based on technical analysis. Therefore, in any case, if the pair is above the moving average, it is not worth selling while waiting for a correction, which we have been talking about for a month. The euro cannot, however, continue to rise in this manner indefinitely. We presume that everything revolves around the major players, who frequently conduct business devoid of regard for the profit motive. Therefore, even though the foundation and macroeconomics do not support it, they can purchase the euro. Market expectations for a faster ECB rate increase than the Fed could be another driver of the growth of the euro. However, the situation is quite difficult. Let's attempt to solve it.

The dollar increased in value during the first half of last year while the ECB took no action and the Fed actively increased interest rates. The ECB then joined the Fed in raising the rate as it had previously. The ECB rate is currently 2%, while the Fed rate is 4.5%. Although the differences are clear, the dollar began to decline when inflation began to moderate. By this reasoning, since the European Union's inflation began to slow down for the first time last month, the euro should likewise cease growing. However, based on where things stand right now, the ECB rate could increase more than the Fed rate. Simply because it is two times as low. Perhaps this element keeps driving the pair higher? The issue is that no one can predict how much the rate in the EU will increase. As of now, experts lean toward thinking that it will continue to expand for another two to three sessions, adding roughly 1.25% throughout this period. But after that, the Fed rate, which will be lower in almost all cases, will be 3.25%. Therefore, even though the monetary policy component is against the growth of the European currency, we still do not know why. However, since the market cannot be reasoned with, long positions are the only option if there is a trend and the price is above the moving average line.

As of January 12, the euro/dollar currency pair's average volatility over the previous five trading days was 101 points, which is considered to be "high." So, on Thursday, we anticipate the pair to fluctuate between 1.0638 and 1.0841. A bout of corrective movement will begin when the Heiken Ashi indicator reverses to the downside.

Nearest levels of support

S1 – 1.0742

S2 – 1.0681

S3 – 1.0620

Nearest levels of resistance

R1 – 1.0803

R2 – 1.0864

Trading Suggestions:

The EUR/USD pair is attempting to move higher. Until the Heiken Ashi indicator turns down, you can continue holding long positions with goals of 1.0803 and 1.0841. After establishing the price below the moving average, you can start opening short positions with a target of 1.0559.

Explanations for the illustrations:

Determine the present trend with the use of linear regression channels. The trend is now strong if they are both moving in the same direction.

The short-term trend and the direction in which you should trade at this time are determined by the moving average line (settings 20.0, smoothed).

Murray levels serve as the starting point for adjustments and movements.

Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.

A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.