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The EUR/USD currency pair traded much more calmly on Friday than on Wednesday and Thursday, as shown in the illustration below. The volatility on the last trading day of the previous week was a mere 31 pips. Essentially, we once again witnessed a complete lack of movement in the market. This is not surprising, as there were virtually no significant events on Friday, and traders had already fully adjusted to the Federal Reserve meeting results by Thursday. Moreover, it cannot be said that volatility was excessively high on Wednesday and Thursday; yes, it was above average, but not extraordinarily so. Hence, we reiterate that market activity is currently quite low.
Can anything change during the current week? Theoretically, yes, as we believe that the reports on unemployment, the labor market, and inflation in the US are now even more critical than the Fed meeting. It's simple: the Fed made its decision without any substantial grounds for either raising or lowering the key rate. As of December 10, the US central bank had received no new data. Therefore, the reports released this week will determine the direction of the Fed's monetary policy over the next few months. The decision to cut rates was made in December, but the market reacted cautiously, as it does not understand the direction of future policy. This was a decision made in thin air. It is evident that the US labor market is not in the best condition, but reliable assessments of its state cannot be drawn from the JOLTs and ADP reports.
Thus, the macroeconomic data this week will indicate the future path for the dollar, although we believe it is already quite obvious without this information. What else is interesting coming up over the next five trading days? In the Eurozone, data will be published on industrial production, business activity indices in the services and manufacturing sectors, and inflation. These are the most important reports, but there are many secondary ones as well. The icing on the cake will be the European Central Bank meeting, although it may not be the largest, most beautiful, or sweetest one. As mentioned multiple times, the ECB has achieved its inflation target, so there is no need to change the parameters of monetary policy.
However, interesting information could still emerge. For instance, Christine Lagarde might suggest that the central bank may raise the key rate once or several times in the next year. If this happens, the euro could rise more rapidly, though even without a "hawkish" stance from the ECB, there are plenty of factors supporting further growth in the EUR/USD pair. Even a relatively "neutral" stance from the Fed for the next year is unlikely to save the dollar. From a technical perspective, the upward trend remains intact. From a fundamental perspective, almost all factors are against the dollar. We anticipate the dollar strengthening only when the situation shifts in its favor.
The average volatility of the EUR/USD pair over the last five trading days as of December 15 has been 58 pips, which is considered "average." We expect the pair to trade between 1.1682 and 1.1798 on Monday. The upper linear regression channel is pointing downward, signaling a bearish trend, but the daily timeframe continues to show a flat trend. The CCI indicator entered the oversold area twice in October but visited the overbought area last week. A downward correction is possible.
The EUR/USD pair is above the moving average, maintaining an upward trend across all higher timeframes, while the daily timeframe has been flat for several months. The global fundamental backdrop remains crucial for the market and negative for the dollar. Over the last six months, the dollar has shown weak growth, confined to a sideways channel. There is no fundamental basis for long-term strengthening. If the price is below the moving average, traders could consider small shorts with targets at 1.1627 and 1.1597 based purely on technical grounds. Above the moving average, long positions remain relevant with targets at 1.1798 and 1.1820 (the upper line of the flat on the daily timeframe).
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