4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - sideways.
Moving average (20; smoothed) - upward.
CCI: 126.7690
On May 20, the euro/dollar currency pair starts with the quotes moving away from the upper border of the side channel, which we have been writing about tirelessly in recent weeks. Just in case, we remind you again: the euro/dollar pair has been trading exclusively within the channel of 1.0750-1.0990 in recent weeks. At the same time, both its borders are fuzzy, that is, reversals occur not only when working out the levels of 1.0750 or 1.0990, but also on the approach to these price values. For example, yesterday everything happened like this. The pair managed to grow to the level of 1.0976 during the day, but it did not have enough strength for more. Although there were enough events in the world in the first two trading days of the week, we believe that they did not have any impact on the movement of the currency pair. And still, market participants traded, paying more attention to technical factors, rather than to the "foundation". In favor of this, the technical factors themselves are banal, which signaled in favor of the growth of quotes to 1.0990 with an unsuccessful attempt to overcome 1.0750. Also, both the pound and the euro were growing synchronously, so if you put the "foundation" as the reason for these movements, it should have come from the United States. And in the United States, just on Monday and Tuesday, there were no macroeconomic publications. There were only regular portions of comments from Donald Trump on all sorts of topics, as well as speeches by Jerome Powell, which, however, did not surprise anyone, since their content was already known to everyone for a long time.
The key theme of the first two trading days of the week was, of course, the proposal by France and Germany to create a recovery fund to support the European economy and provide assistance to the states most affected by the "coronavirus". Many experts and analysts have written about this topic, but we would like to discuss it in more detail. The first thing we would like to note is that this is just a proposal by Emmanuel Macron and Angela Merkel. This is not a decision yet. Thus, like any proposal in the EU, it requires the approval of all 27 member states of the Alliance. Recall that the essence of the proposal of Macron and Merkel is to create a 500-billion fund at the expense of contributions from each EU member state, and give grants to the most affected countries and sectors of the economy. But everyone will have to "chip in". In other words, Italy, Spain, and Portugal will also have to spend several tens of billions of euros to this fund, from which they will then receive gratuitous grants. Initially, many thought that Germany and France intended to finance aid to the southern countries. However, there is nothing so generous and extraordinary in the offer of Paris and Berlin. Berlin, like many other Northern capitals, opposed any assistance to the "southerners", especially on a gratuitous basis. The northerners' position is simple. Southern countries should learn to budget and save more, so as not to ask for help later. However, even though this position is not devoid of logic, Berlin and Paris understand that without the help of the European Union, it can split. Why should Italy continue to stay in the EU if it does not receive any help from the EU when the crisis comes? We have already said that anti-European sentiment is maturing in Italy so that it could end up with a new independence referendum in a few years. Thus, the two largest EU economies have decided that it is better to help everyone with money now and preserve the integrity of the European Union than to lose one or more of its members later. At the same time, as we already understood, not only Paris and Berlin but all EU members will be "thrown off". It is assumed that the contributions to the fund will be determined by the size of the country and the size of its economy. "We are convinced that this is not only fair but also necessary. We must act to get out of the crisis normally," Angela Merkel said in a video of the press conference. French President Macron agreed with his counterpart and said that "at the beginning of the epidemic, the EU did not show solidarity." He also said that assistance would be provided in the form of grants, rather than loans that will need to be returned. However, it is already known that not all EU countries support the generosity of rich France and Germany. For example, Austria, the Netherlands, Denmark, and Sweden have already said that they are ready to help victims of the epidemic, but not with grants, but with loans. The Netherlands even pays special attention to the moral aspect of the issue: countries that failed to properly prepare financially for an emergency will receive money that will not need to be returned. Many believe that with this approach, Rome, Madrid, and Lisbon will learn nothing and will assume that in each crisis they will be saved by other EU countries at their own expense.
Thus, from our point of view, this Fund can also be buried in the archives of the EU, as well as the idea with "corona bond". Moreover, 500 billion is not such a big amount, it may not be enough for everyone in need. Moreover, the discussion of this proposal should begin no earlier than June. Thus, firstly, this event is not soon, and secondly, it is still "written with a pitchfork on water".
Based on all the above, we do not believe that this event could support the euro currency. Moreover, we believe that the pair may continue to trade in a narrow side channel of 1.0750-1.0990, respectively, in the coming days, the quotes may resume falling. Thus, technical factors remain in the first place for analyzing and predicting the movement of the euro/dollar pair. We can expect the continuation of the upward movement only when traders break the upper limit of the channel, that is, the area of the $ 1.10 level.
Today, the European Union is scheduled to publish the consumer price index for April, but we believe that this indicator will not cause any interest among traders. The forecast is 0.4% in annual terms and 0.3% in monthly terms. In the context of a pandemic, inflation is not an important or significant indicator.
The average volatility of the euro/dollar currency pair as of May 20 is 80 points. Thus, the value of the indicator remains stable and is characterized as "average", despite a fairly active Monday. Today, we expect quotes to move between the levels of 1.0850 and 1.1010. The reversal of the Heiken Ashi indicator downwards may signal a turn of the downward movement within the channel of 1.0750-1.0990.
Nearest support levels:
S1 – 1.0925
S2 – 1.0864
S3 – 1.0803
Nearest resistance levels:
R1 – 1.0986
R2 – 1.1047
R3 – 1.1108
Trading recommendations:
The EUR/USD pair is fixed above the moving average line, so buy orders with targets near the level of 1.0990 are relevant now. The reversal of the Heiken Ashi indicator downwards indicates not just a round of corrective movement, but a round of downward movement within the side channel of 1.0750-1.0990. Thus, it is now possible to consider selling the pair with the goal of 1.0750 and buying only above the level of 1.1000 with the goals of 1.1047 and 1.1108.
The material has been provided by InstaForex Company - www.instaforex.com