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EUR/USD - 4H.
The EUR/USD pair performed a reversal in favor of the European currency on December 12 after rebounding from the correction level of 61.8% (1.1104) and rising to the correction level of 100.0% (1.1180). The rebound of the pair from this Fibo level allows traders to expect a reversal in favor of the US dollar and some fall in the direction of the correction level of 76.4% (1.1133). Also, a second bearish divergence was formed, this time at the CCI indicator, which increases the pair's chances of rebounding from the Fibo level of 100.0%. In addition to this, the pair reached the upper line of the upward trend area and also performed a rebound. Thus, most factors indicate that traders are preparing for a pullback down. The euro may fall in today's trading.
In the last two days, the euro currency was in demand among traders, although its reasons for growth were far from clear. For example, the ECB meeting was held yesterday, which, by and large, was in the shadow of the elections in the UK. However, traders could not ignore the outcome of the ECB meeting and Ms. Lagarde's speech. Following the meeting, the European Central Bank decided not to change the key points of monetary policy. Rates remained unchanged, the volume of monthly stimulation of the economy through cash injections by buying securities from the market - as well.
But Christine Lagarde's speech undoubtedly aroused the interest of traders and also left some questions unanswered after its conclusion. The fact is that the ECB President has considered positive aspects in the current state of the EU economy. According to her, "there are some initial signs of stabilization and moderate growth in core inflation," as well as "the risks to economic growth, although negative, are now somewhat less pronounced." From my point of view, such a statement is not true. Especially in the context of the fact that the ECB lowered its forecasts for inflation and GDP for the next 3 years. That is, it turns out that in the long term, the ECB expects the situation to worsen, but Christine Lagarde "sees" signs of stabilization. I also believe that the acceleration of inflation in November to 1.0% y/y is, firstly, a one-time character (based on the fact that inflation, for example, in Germany remained unchanged at the end of November and about any of its growth is now out of the question), and secondly, the consumer price index is now so weak that acceleration by several tenths of a percent is very difficult to regard as a positive point. Lagarde also announced the first revision of the Central Bank's strategy since 2003, which will make it possible to assess the possibility of adjusting the inflation target. At the moment, it is 2.0% y/y. And the European Central Bank has not been able to achieve this inflation rate for many years, despite record low key rates and a long bond redemption program. On Thursday, Ms. Lagarde also announced that she intends to start updating the strategy in January and complete it before the end of the year. "The new policy should be comprehensive and include consultations with members of the European Parliament, the academic community and civil society," Lagarde said, explaining what "strategic changes in the ECB" mean.
Forecast for EUR/USD and trading recommendations:
On December 13, traders will move away from the entire information background of this week. Although some economic reports and news were ignored by traders, and some were blocked by more important messages, at the end of the week you need a break from the huge flow of news. Most likely, the rebound from the correction level of 100.0% (1.1180) will cause the pair to fall in the direction of 1.1133 and 1.1104.
The Fibo grid is based on the extremes of October 21, 2019, and November 29, 2019.
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