The EUR/USD currency pair pulled back slightly on Thursday, but this retracement has no real impact. Ahead lies an event of major importance not only for Europe, the United States, or Russia, but possibly for the entire world. For the first time in almost 10 years, the leaders of the U.S. and Russia will meet in person to discuss bilateral partnership, ending the conflict in Ukraine, and lifting sanctions on Russia. These developments have had a huge impact on the economies of Russia, Ukraine, and many European countries, and on Friday, they may take a turn toward de-escalation and resolution.
There is little more to add here. If Vladimir Putin agreed to meet Donald Trump — and on U.S. soil — there is likely reason to expect the military conflict to end. If the conflict ends under conditions acceptable to both Russia and Ukraine, sanctions on Moscow will begin to be lifted. If the first round of talks is successful, it will be followed by a series of meetings, consultations, and discussions. As the European Union has rightly noted, the main priority is to achieve a ceasefire. After that, every effort can be made to ensure that the interests of both sides are taken into account.
What does this mean for the currency market? There may be no market reaction at all. First, the talks are scheduled for late Friday evening — literally an hour or two before the currency market closes. Therefore, any major trader reaction (if there is one) should be expected on Monday. Even if we see a sharp move in the final hours of the current week, it is unlikely anyone will want to open positions right before the weekend.
Second, de-escalation of the conflict between Ukraine and Russia may be a lengthy process, just like the conflict itself. Both sides have a long list of demands, most of which seem practically unachievable. Thus, either the negotiations will be very protracted, or they will fail at some stage. In the first case, the market is unlikely to rush to buy the euro, the pound, or other risk assets — especially considering that these currencies have already been rallying for half a year. Without certainty that the conflict is truly over, the market will not rush to conclusions. In the second case, the U.S. dollar is also unlikely to benefit. If the talks fail, it will simply mean the conflict will continue for several more years. Traders have had three and a half years to price in the war, so the dollar is unlikely to strengthen if the talks collapse suddenly.
Thus, we believe that only the announcement of a truce could trigger a market reaction — and even then, on Monday. Most likely, the dollar will again come under pressure, but it has already been under pressure for six months. Even without this event, the U.S. currency would likely continue to decline. Therefore, for the dollar, the end of the conflict in Ukraine means almost nothing. The real beneficiaries could be European currencies, for which the "war next door" would end, significantly reducing the risk of direct involvement. As we have said many times, the global fundamental backdrop remains strongly negative for the dollar.
The average volatility of the EUR/USD currency pair over the last five trading days as of August 15 is 76 pips, which is considered "moderate." We expect the pair to move between 1.1564 and 1.1716 on Friday. The long-term linear regression channel is pointing upward, which still indicates an uptrend. The CCI indicator has entered the oversold area three times, signaling the resumption of the upward trend.
Nearest Support Levels:
S1 – 1.1597
S2 – 1.1536
S3 – 1.1475
Nearest Resistance Levels:
R1 – 1.1658
R2 – 1.1719
R3 – 1.1780
Trading Recommendations:
The EUR/USD pair may resume its upward trend. The U.S. currency remains heavily influenced by Trump's policies, and he shows no sign of "stopping where he is." The dollar has risen as much as it could, but now it appears to be time for a new round of prolonged decline. If the price is below the moving average, small short positions can be considered with targets at 1.1597 and 1.1564. Above the moving average, long positions remain relevant with targets at 1.1719 and 1.1780 in continuation of the trend.
Explanation of Illustrations:
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
