General analysis EURUSD for 07.04.2022
Current dynamics
The US dollar is strengthening against major currencies on Thursday. Earlier this week, FOMC member Lael Brainard announced that the Fed would not only continue to aggressively raise the key rate but would also begin to wind down the central bank's balance sheet. The plan is for a total reduction of $8.9 trillion. Investors had assumed that the regulator would certainly go ahead with QT cuts, but the speed and volume surprised investors.
The Fed is expected to start cutting the balance sheet after the May meeting, with the volume of cuts to be $95 billion per month. The Fed has already used this measure before, at the same time as it has tightened monetary policy in the past, but the volume has never been as large. It is also worth noting that the minutes of the March meeting were published yesterday. It was clear from the minutes that the regulator had planned to raise the key rate by 50 basis points already in March, but was cautious due to the difficult geopolitical situation in eastern Europe.
However, many experts believe that the commitment to an aggressive monetary policy may not last long. As soon as inflation starts to fall, the Fed will take a pause and then may lower the rate for to normalize. At the same time, attention should be paid to the epidemiological situation in China. The incidence of COVID-19 continues to rise and the Chinese government is intensifying social distancing measures. A coronavirus outbreak in China could disrupt supply chains and increase price pressures in the US economy.
Today at 14:30 (GMT+2) the US will release statistics on jobless claims. Traders are also waiting for a speech by Bundesbank's Balz at 18:30 (GMT+2). The official statement may affect the dynamics of the pair, as the minutes of the last Fed meeting will be published a few hours earlier.
Support and resistance levels
On the 4-hour chart, the instrument is trading at the bottom of the Bollinger Bands near the two-year lows. The pair is consolidating in the limited price range of 1.0850-1.0900. A breakout of one of the levels will be a signal to open a position. The indicator is pointing downwards and the price range is not significantly reduced, indicating a correction of the downtrend. The MACD histogram is in the negative zone, maintaining a sell signal. Stochastic is correcting in the equilibrium area, no signal to enter the market has been formed.
- Support levels: 1.0760, 1.0805, 1.0855.
- Resistance levels: 1.0900, 1.0970, 1.1015, 1.1065, 1.1105.
Trading scenarios
- Short positions should be opened below the level of 1.0855 with a target of 1.0775 and a stop-loss at 1.0905. Implementation time: 2-4 days.
- Long positions can be opened above the level of 1.0945 with a target of 1.1045 and a stop loss at 1.0895. Implementation period: 1-3 days.