The EUR/USD currency pair continued last week's trend on Monday. Recall that on Thursday and Friday the US dollar showed fairly strong gains based on... a renewed market belief in a Federal Reserve rate hike. Although the European Central Bank raised key rates for the second time this year on Thursday and US inflation did not accelerate on Friday, the market somehow again became convinced the Fed will deliver a hawkish decision this Wednesday, so the dollar has risen three full days in a row. On Monday, there were no important events or releases in the euro area or the US. Thus, we are now observing the formation of a new downtrend; whether it lasts depends on the Fed's stance. Even though the market is now 100% certain of a September hike, doubts about further tightening remain large. In any case, if the Fed decides as the market expects, that decision has already been priced in. Therefore on Wednesday evening we could see the dollar fall rather than rise. Nevertheless, we get the impression the market is once again simply looking for any reason to buy the US currency.
On the 5-minute TF on Monday, two strong trading signals formed. We cannot call Monday's moves fully logical, but they were good enough to generate tradable signals rather than mere noise. First, the pair consolidated below the 1.1584–1.1594 area, then fell to the 1.1527–1.1531 zone and bounced from it. As a result, short positions produced about 40 pips of profit, and traders holding long positions could move their stop-loss to break-even.
On the hourly timeframe, the EUR/USD pair continues a downward trend, which can still be seen as a correction. Given recent months' events, we believe the euro should continue steady growth in the medium term. The dollar currently has no growth drivers other than the market's near-religious belief in a Fed rate hike.
On Tuesday, novice traders may open short positions targeting 1.1461–1.1474 if price consolidates below 1.1527–1.1531. Open longs targeting 1.1584–1.1594 if price bounces from the 1.1527–1.1531 area.
On the 5-minute TF, consider the levels 1.1366–1.1377, 1.1461–1.1474, 1.1527–1.1531, 1.1584–1.1594, 1.1655–1.1665, 1.1745–1.1754, 1.1830–1.1837. On Tuesday, the US calendar is almost empty, and Germany and the euro area will release ZEW economic-sentiment indices, which are unlikely to draw significant trader attention.
Price levels (areas) of support and resistance serve as targets for opening buy or sell trades or as sources of signals.
Red lines indicate channels or trend lines that show the current trend and the preferred trading direction.
The MACD indicator (14,22,3) — the histogram and signal line — is an auxiliary indicator that can also provide signals.
Important speeches and reports (listed in the news calendar) can significantly influence currency pair movements. Therefore, during their release, traders should approach trading with utmost caution, or exit the market to avoid sudden reversals against the preceding move.
Beginner forex traders should remember that not every trade can be profitable. Developing a clear strategy and practicing money management are key to long-term success in trading.
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