24-hour timeframe
Another trading week on the Forex market has ended and after that, we can draw several conclusions. First, the volatility of the EUR/USD currency pair continues to decrease. This means that the activity of large and small traders is becoming less, and Friday showed that the pair can't move at all with the help of small traders. After all, it was on Friday, when all banks were closed to celebrate Good Friday, that the euro/dollar currency pair showed the lowest volatility over the past few months. Thus, the major players in the market were absolutely absent, and all the movement that we saw was the work of small players. Now any trader can understand how important the role of major players is in the exchange rate formation of any currency. It also becomes clear and obvious who was responsible for the month-and-a-half storm in the Forex market. When the "coronavirus" epidemic gained momentum and it became clear to absolutely everyone in the world that this was not a joke or banal flu, investors, traders, and companies began to buy and sell currencies in a panic mode. Since it was completely incomprehensible what awaits the world economy, what awaits the economies of the United States and the EU, when the epidemic will end, what losses will occur, how long the quarantine will last, all market participants relied on their opinions and forecasts when making transactions. And as soon as the pair began to move strongly in any direction, smaller traders immediately joined in and the movement only increased. Now the market seems to be returning to normal. The main thing is that there should be no new shocks in the world. Given the fact that the pandemic continues to spread across Europe and the United States, there may well be new shocks.
So far, we can note the diligent attempts of the US and EU governments, the Fed and ECB, as well as other government and financial structures to slow down the decline of the economy. It is difficult for us to judge whether there is any effect from the measures taken to help the economy. More precisely, of course, there is a positive effect, but both economies continue to contract strongly. Since we don't know what would have happened if no action had been taken, we can't compare the effects. Thus, we have to believe that if it were not for the many trillion-dollar stimulus packages, the situation would be even worse than it is now.
We also note the first macroeconomic reports for March in the United States and in the European Union. Both situations are almost identical. The American labor market collapsed, inflation slowed, and unemployment began to grow. We have received much less macroeconomic information from the European Union, but it is clear that the situation here is no better. Most importantly, both economies are contracting synchronously and are experiencing the same kind of problems. Therefore, neither the US dollar nor the euro has a clear advantage in the foreign exchange market. At the moment, the exchange rate of the currency pair is 1.0935. On February 20, when the panic in the markets began, the exchange rate was 1.0800. If you rewind the time a little more, to a time when no one had ever considered "coronavirus" seriously, the rate was 1.10. Thus, after a month-and-a-half storm, almost nothing has changed in the balance of power between the euro and the dollar. And this is true.
The question is, what is the future of the euro/dollar? We are not ready to predict when the epidemic will end and with what losses the European Union and the United States will come out of it. No one knows. However, we can still highlight one point, and it is, from our point of view, key in the future relationship between the euro and the dollar. This factor is almost complete equality in the key rates of the Fed and the ECB, and the resumption of the quantitative stimulus program by both central banks. Earlier, we regularly, for probably a year, said that the overall balance of forces remains in favor of the dollar. The US economy looked uniquely stronger, all key macroeconomic indicators were higher than European ones, and monetary policy was much more hawkish. Now, both economies are falling synchronously, and the Fed lowered the rate by 1.5% while the ECB left its rate unchanged. Thus, from the huge advantage of the dollar over the euro, it became minuscule. The epidemic will end sooner or later, the quarantine will also be completed, and it turns out that the main question now is how much will both economies fall? If there are approximately the same losses, then the euro and the dollar will be in the same conditions and preference in the long term will not be given to anyone. And the US currency will no longer have a strong monetary policy factor.
And of course, we can't help but note the actions and statements of Donald Trump, who at any time remains the main news-maker. For example, this week, Trump accused the WHO of "completely failing to contain the epidemic." Trump also said that he would consider cutting funding for the organization and accused it of spending the most money on its maintenance by Americans, while the WHO itself spends money on China. Earlier, the angry hand of Trump fell on China itself for spreading the infection, for misinformation around the world, which led to the fact that the infection could not be localized in time. The American leader himself does not consider himself guilty of anything. Moreover, Trump changes his own testimony, comments, and attitude to any issue with surprising ease and regularity. Then Trump says that the COVID-2019 virus does not pose any threat to Americans and will not survive the spring. Then the American President says that from the very beginning he knew everything about the virus's lethality, but "did not want to deprive people of hope." In general, it is impossible to understand Donald Trump.
From a technical point of view, there is currently no trend in the 24-hour timeframe. "Correction vs correction vs correction" is visible to the naked eye. Thus, we still believe that the quotes will rise to the area of the Kijun-sen line or slightly lower, where the final consolidation of the currency pair will take place. No one knows what will happen after that. Everything will depend on the results of the fight against the pandemic and the scale of the decline of the European and American economies.
Trading recommendations:
On the 24-hour timeframe, the euro/dollar pair is again adjusted to the critical line. However, we believe that it is best to trade now using the 4-hour timeframe analysis, since there is no trend on the current chart. On the 4-hour chart, we believe that the future fate of the pair will be determined in the area of 1.09-1.10.
The material has been provided by InstaForex Company - www.instaforex.com