4-hour timeframe
Average volatility over the past 5 days: 69p (average).
On Tuesday, May 12, the EUR/USD currency pair continued the upward movement in accordance with the hypothesis and the scenario of movement inside a wide side channel, limited by the levels of 1.0750 and 1.1000. Since yesterday, the pair was approaching the lower border of this channel and made a reversal near it. Thus, it can be assumed that now an upward movement awaits the euro/dollar pair. So it happened on Tuesday. At the moment, the upper level of volatility of 1.0882 has already been worked out, and the overall volatility of the day fully corresponds to the average volatility indicator at this time. Thus, traders made a second attempt to raise the pair to the psychological level of 1.10, which may be successful.
As for the macroeconomic background, only one important indicator has been published today - inflation in the USA. We have already said in previous articles that the inflation indicator at this time has moved into the category of secondary ones. In principle, today's trading only confirmed this hypothesis. First, the inflation report failed, becoming even weaker than already weak forecasts. Secondly, the growth of quotes of the pair (respectively, the fall of the US currency) began a few hours before the publication of the report, so the effect of this report on the mood of traders was very indirect and ambiguous. Thirdly, we said that the pair would grow without the inflation report in the USA. Thus, we believe that even today, when it would seem the macroeconomic background coincided in nature, and in time (almost) with the movement of the pair, we believe that it was not it who caused the strengthening of the European currency. Returning to the inflation report, the indicator in April amounted to only 0.3% in annual terms. In March, the value was 1.5% and in monthly terms, inflation was -0.8%. And the consumer price index excluding energy and food prices slowed down to 1.4%. Thus, there are several conclusions. Firstly, the price in the United States has declined mainly due to the global drop in oil, gas and other energy prices. Secondly, prices fell on some categories of goods due to a strong drop in demand for these goods (goods not essential). Thus, such low inflation is not surprising at all. And we believe that absolutely no one was upset or disappointed by such a value. The fact that inflation will recover very quickly as soon as the services and production sectors recover, workers will return to work, and unemployment will return to 50-year lows again. However, this is not expected in the near future. Thus, first the sectors of the economy that provide GDP should be restored, and only then should we worry about a systematic and stable price increase, which will spur the economy to growth. Now, there is no question of any growth. which will spur the economy to growth. Now, there is no question of any growth.
At the same time, the head of the Minneapolis Reserve Bank, Neel Kashkari, said the unemployment report released on Friday was probably "understated." The head of the Federal Reserve Bank believes that the real unemployment rate is already 17%, and will grow to 25% in the future. "This bad report actually downplays how great the damage has been done," Kashkari said. However, the head of the Federal Reserve Bank also expressed hope that the US government has learned from the Great Depression, so it will be possible to avoid economic depression or minimize the negative consequences of the coronavirus pandemic at this time. However, in any case, the economic recovery will be as gradual as possible until the vaccine against COVID-2019 is invented. Thus, Kashkari questioned all the predictions that said that recovery would be quick, but in 2021.
The head of the Federal Reserve Bank of Philadelphia, Patrick Harker, also believes that the economy should not be opened hastily, otherwise the second wave of the pandemic could break out in the country, which will "bury" the economy. According to him, "the way out of the crisis from the economy will be difficult, and even if the situation develops according to the most optimistic scenario, it will not be able to catch up before the end of this year." "A less optimistic scenario awaits us if we open the economy too quickly. In this case, we will witness the second wave of the COVID-19 pandemic. This will not only be a catastrophe in the field of epidemiology, but will also nullify any economic recovery," Harker concluded.
Thus, a certain number of high-ranking officials do not support Donald Trump and his intention to resume the economy as quickly as possible. Politicians and economists understand that if a hasty exit from quarantine results in a new wave of the epidemic, key indicators of the state of the economy will collapse even more. But at the moment they have not even stopped their fall due to the first wave.
4-hour timeframe
Average volatility over the past 5 days: 120p (high).
On May 12, the GBP/USD currency pair, unlike the European currency, rose quite sharply against the US dollar, but also fell sharply during the US trading session. In general, the quotes of the pair remained close to the lower border of the lateral 400-point channel, which we have repeatedly written about in recent articles. However, we consider the fact that the pound/dollar pair cannot begin to grow to the upper border of this channel, which lies near the level of 1.2650, as an alarming factor. Thus, the pair may try to exit through the lower boundary of the channel in the near future and begin the formation of a new downward trend. There are no fundamental grounds for such a scenario now. News and data are mostly negative from the United States, but nothing positive is happening in the UK either. We can say that now, in principle, traders do not receive any optimistic and encouraging information. Thus, we cannot say that the pound will rise in price on the basis of fundamental data, and the same for the US dollar. In addition, the problem lies just in the lower border of the side channel, which is quite blurry. One of the latest price lows is located at 1.2161, the other at 1.2246, the third at 1.2265. Thus, it is difficult to say which area the bears must break through in order to assume that the pair left the side channel.
Recommendations for EUR/USD:
For short positions:
The EUR/USD pair continues its upward movement on the 4-hour timeframe. Thus, it is recommended to consider new sales of Eurocurrencies with a view to the support level of 1.0745 in the event of returning the price to the area below Kijun-sen.
For long positions:
It is recommended to open new long positions with the target at the resistance level of 1.0954 when the price consolidates above the Senkou Span B line, which will strengthen the current signal to buy the Golden Cross.
Recommendations for GBP/USD:
For short positions:
The pound/dollar is trying to continue the downward movement again, but it has settled again around the level of 1.2300. Thus, it is recommended that traders sell a pair with targets of 1.2212 and 1.2164, in case of breaking through the level of 1.2283. But even in this case, sell positions are still associated with increased risk.
For long positions:
It is recommended that buying the GBP/USD pair be considered with a view to the Senkou Span B line and the level of 1.2450, but only in small lots if the Kijun-sen line is broken through again.
The material has been provided by InstaForex Company - www.instaforex.com