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EUR/USD analysis and forecast on March 21, 2022

EUR/USD looking for direction

In our review of the main forex currency pair, we will talk about the situation in Ukraine, the decision of the Fed, and the technical analysis of EUR/USD. So, amid the ongoing military operation in Ukraine, both sides are trying to reach a compromise. The Russia-Ukraine conflict has also affected the European countries as they are now forced to impose a ban on Russian gas and oil supplies. Since the start of the special operation, both sides of the conflict have already held three rounds of negotiations, which indicates the attempt to end the confrontation. According to Russia's chief negotiator Vladimir Medinsky, Ukraine should have a neutral status, which means that joining NATO is unacceptable.

In this regard, the Ukrainian side is concerned about its security guarantees. The fact that negotiations still continue, inspires optimism in the market. However, according to the Ukrainian side, the negotiation process may be delayed although it was previously assumed that the parties would reach an agreement in May this year. According to Kyiv, it will take time to resolve the issue of lifting sanctions. This topic will become relevant only when the two sides agree on all aspects, including demilitarization.

As for the Fed's monetary policy, the regulator remains quite hawkish. Thus, Minneapolis Fed President Neel Kashkari said that inflation was higher than the Fed had expected. He expressed confidence that the US central bank will make every effort to normalize monetary policy and, first of all, correct the imbalance between supply and demand. According to Kashkari, the regulator may raise the funds rate to 2% by the end of this year. The hawkish comments of the Minneapolis Fed President once again confirm the Fed's plan to pursue a tighter monetary policy in order to curb inflation.

Weekly chart


Despite a rate hike introduced by the Fed and persistent hawkish rhetoric, the EUR/USD pair was trading higher in the previous weekly session. I have already mentioned the possible reasons for this in my earlier reviews. The USD traders may have priced in the Fed's plans for the monetary policy tightening. The continued negotiations between Russia and Ukraine may have reduced the demand for the US dollar as a safe haven asset. Yet, it is still too early to say that the market sentiment has improved. As for the technical picture, we can observe a big upper shadow of the last candlestick. Its closing price settled below the previous high at 1.1122 as well as below an important technical level of 1.1100. Meanwhile, the pair was rising to 1.1138 between March 14 and 18 but failed to consolidate there and closed the week at 1.1050. There are two views on the situation. On the one hand, closing the trade above the psychological level of 1.1000 is a big achievement for the euro bulls. However, the failure to break through bears' resistance at 1.1100-1.1122 is a negative factor for buyers. If the pair stays under bullish control this week and closes the trade above 1.1138, this will strengthen its upside potential. The formation of a bearish candlestick on the weekly chart may mark the end of the corrective growth and signal the resumption of the downtrend.

Daily chart


As you can clearly see on the daily chart, the pink line between 1.1495 and 1.1358 serves as strong resistance which does not let the price move higher. The same can be said about the blue Kijun line of the Ichimoku Indicator. In general, my previous assumptions that the pair will face strong resistance have turned out to be true. In case of an actual breakout of the indicated resistance line, as well as the Kijun line, traders may consider opening long positions on EUR/USD after a pullback. If the price fails to break through these levels and forms a bearish candlestick, it is highly possible that the pair will resume the downtrend, creating opportunities for going short. In the meantime, the EUR/USD pair is looking for direction. Tomorrow, we will consider the euro/dollar pair on lower time frames and try to find the best entry points.

Good luck!

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