24-hour timeframe
The last two trading days of January 2020 offset half of all the euro currency's losses this month. And although volatility remains extremely low (the euro/dollar pair fell "as much" as 240 points for a month), a certain trend movement is still present. One fact we must note at the very beginning. The pair approached the lows of November 13 and 29 at the end of January and was not able to overcome this area for the third time (around the level of $1.10). This suggests that sellers become sharply less on the way to this level, and buyers place pending buy orders near this level, not believing that the euro can resume a long-term downward trend. In general, it can be almost unambiguously stated that the bears have huge problems with overcoming the area of $1.09 - $1.10. And if not for this area, we would have long been observing the euro currency near the price parity with the dollar. How can one not recall the "paradoxical situation", which we have already described several times. The problem is that the bears are afraid to sell the pair near the level of $1.10, and the bulls have no special fundamental and macroeconomic reasons for buying the euro. Therefore, we generally observe the same picture over the past 9-10 months: the pair leisurely approaches 2-year lows, after which the bears stop selling the pair and the correction begins at 200-300 points up; Furthermore, bulls are not fundamentally supported by anything and they also begin to reduce purchases; the pair again falls to the area of 1.0900 - 1.1100 and the demand for the dollar falls, which causes quotes to leave up.
We had high hopes for the actions and policies of the central banks of the United States and the European Union. It is they, from our point of view, who could and can influence the currency pair in order to get it out of the "almost flat" state. The Federal Reserve and European Central bank meetings took place in January. However, unfortunately, both central banks did not take any measures; they did not announce any changes in monetary policy. Therefore, in fact, the situation did not change after both meetings. The ECB continues to prepare for an even greater slowdown in the EU economy, reduces forecasts for GDP and does not believe that it will be possible to reach a 2% inflation rate in the near future. Indeed, 2% in the long run has not been achieved over the past 8 years, why would inflation suddenly begin to accelerate now, in a period of ultra-low interest rates and global trade uncertainty? Christine Lagarde once again announced the "global structural changes", the formation of which will require at least a year. Indices of business activity in the EU began to recover slightly (we are talking about the industrial production sector), and industrial production itself continues to decline. The situation is approximately the same in the United States. The Fed left the interest rate unchanged, Jerome Powell noted the "good condition" of the economy, confident, albeit moderate, growth rates. Business activity in industry, however, continues to be at a low level, industrial production - to decline, GDP growth - to fall. Inflation in recent months seems to have grown to 2.3% y/y, but there is every reason to believe that it was a "seasonal surge" and inflation in the United States will begin to slow down again in January and February. Thus, the difference between the slowing economies of the EU and the US is only that overall macroeconomic performance in the United States remains higher. Both GDPs are slowing, but eurozone GDP has slowed to 1.0%, and the United States to 2.1%. Inflation remains low, but it is 1.4% y/y in the EU, and 2.3% in the United States. And so it is with almost all indicators. Thus, until the statistics in the EU begin to grow, counting on a serious strengthening of the European currency makes no sense.
As for the prospects and global factors that may affect the EU and US economies in the near future, everything is extremely simple here. Firstly, these are all the same trade wars. Despite world optimism about the conclusion of the "first phase" deal between Beijing and Washington, the trade war continues, and most of the duties imposed by Trump and due to which the global economy was slowed down remained in force. In addition, during the international economic forum in Davos, Trump has already announced a trade war with the EU if "Europeans do not sign a trade deal that would be beneficial to America." Thus, according to unconfirmed information, negotiations between the EU and the US are already underway, but nothing is reported on their progress. We have no idea at what stage the negotiations are and whether it is likely that a trade deal will be concluded without starting a trade war. However, we can say for sure that if Trump introduces duties on EU engineering products, this will be a severe blow to the bloc economy. Europeans are well aware of this, and will make every effort to avoid conflict with the odious American leader.
From a technical point of view, on a 24-hour chart, the euro/dollar pair returned to the Ichimoku cloud. Since we still believe that there are no special fundamental reasons for the euro to go up, the downward movement may resume in the near future. However, as before, we recommend trading on the downside with the "approval" of technical factors and indicators.
Trading recommendations:
The trend for the euro/dollar pair has changed in a downward direction. Thus, on a 4-hour time frame, it is recommended to consider short positions after an appropriate sell signal from Ichimoku has formed. Most likely, on a 24-hour timeframe, the pair will hang up from the Senkou Span B or Kijun-sen line and resume downward movement.
Explanation of the illustration:
Ichimoku indicator:
Tenkan-sen is the red line.
Kijun-sen is the blue line.
Senkou Span A - light brown dotted line.
Senkou Span B - light purple dashed line.
Chikou Span - green line.
Bollinger Bands Indicator:
3 yellow lines.
MACD indicator:
Red line and bar graph with white bars in the indicators window.
The material has been provided by InstaForex Company - www.instaforex.com