EUR/USD. EU domestic scandal, 2 trillion dollar support and pending reports

Trading 30 mar 2020 Commentaire »

Over the weekend, US President Donald Trump signed a bill to allocate two trillion dollars to help the economy. After a short political battle, this document was supported by both the House of Representatives and the Senate. The head of the White House approved the law almost immediately after its adoption, reminding reporters that these funds will be used for additional funding for the health care system, business support and direct payments to Americans.

By and large, the market did not doubt that in the end US politicians would find a common denominator in this issue and agree on the proposed law. The Democrats did not resist for long, as a prolonged blocking of the bill could turn electoral losses against them. Despite the predictability of this scenario, dollar bulls positively assessed its implementation – the greenback in one way or another strengthened in almost all pairs at the beginning of the trading week.

Let me remind you that the previous week was extremely unsuccessful for the dollar - the US currency was rapidly falling in price on all fronts, at the fastest pace in the last ten years. Therefore, the corrective pullback in the wake of a half-empty economic calendar and positive news from the White House looks quite logical. But here the key question is different: are we now dealing with a corrective price pullback or was last week's dynamics a moment of weakness for the greenback? Despite a slight increase in the dollar index (this indicator rose from 98.53 points to the current value of 99.30), dollar pairs react differently to its comeback. For example, the GBP/USD pair actually ignores the US strength, as does the AUD/USD pair. The loonie feels insecure (especially after the Bank of Canada's Friday decision), but the yen, coupled with the dollar, even tried to show character today.

Against the backdrop of the above dollar pairs, the European currency looks the most affected. In the first half of today, the EUR/USD bears were able to push the pair under the support level of 1.1060 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line). Now, sellers are actively trying to take the pair to the area of the ninth figure in order to strengthen their positions and return the general bearish mood to the market. And here it is worth noting that in the case of the EUR/USD pair, it is not so much about strengthening the dollar, but about weakening the single currency. As you know, Brussels could not conduct a blitzkrieg and implement the Marshall Plan to save the eurozone economy. By the way, last week the euro strengthened its position precisely due to optimism regarding the implementation of this scenario - the intentions of the head of the European Council Charles Michel sounded too ambitious.

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However, last Thursday, European Union leaders at an online summit failed to agree on the scale and tools to support the economy. The parties went to the corners of the ring, giving eurozone finance ministers two weeks to develop possible options. Initially, this fact could not change the optimistic mood of the European currency, but later in the press began to show facts indicating a serious split between the"South and North" of Europe. And this fact has already broken the EUR/USD bulls, especially against the backdrop of coordinated actions of congressmen in the US.

As it turned out, the key stumbling block was the so – called "crown bonds" - a common debt instrument for all EU countries that would help finance the response to the coronavirus pandemic. The leaders of Italy and Spain, which are the countries where the most widespread outbreaks of the virus occurred, called for the early introduction of such bonds. In turn, the main opponents of the idea were Germany, the Netherlands and Austria. The leaders of these countries said that at the moment no one knows when the crisis will end, so the EU needs to keep certain tools to intervene later if necessary. However, Italian Prime Minister Giuseppe Conte continued to press his case, emotionally expressing his point of view. As a result, the summit lasted three hours longer than planned, but the parties were unable to find a consensus.

The main opponent of the Italian leader - German Chancellor Angela Merkel - said that she prefers to use the European stabilization mechanism (ESM), which was created in 2012 for such purposes – to help the countries of the eurozone in serious financial crises. The arguments continued for six months!) hours, and, according to the European press, in some situations, the leaders of the countries did not restrain their emotions. As a result, the head of the European Council invited all participants of the meeting to return to the debate in two weeks, when all the proposals of the eurozone finance ministers will be considered.

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In other words, Europe has demonstrated an inability to act quickly, decisively and, most importantly, in a coherent manner. Italians took the current situation quite painfully (especially amid rising deaths from Covid-19 and a complete standstill of business in the country) - according to Conte, it is not just about the current differences between him and the German chancellor, but about a "hard and frank confrontation" regarding the future course of the EU.

It is worth noting that political troubles in peacetime also exerted significant pressure on the euro – what can we say about today? Therefore, it is not surprising that the European currency reacted negatively to recent events – after all, the parties did not come to a common opinion, and after the summit, the rhetoric of politicians (both north and south) only tightened.

This fundamental background contributes to a deep pullback of EUR/USD. But, in my opinion, until the bears have overcome the support level of 1.0880 (the lower boundary of the Kumo cloud on the daily chart), it is too early to talk about the resumption of the downward rally. Let me remind you that not only Nonfarms data will be released this week, but also other important US macroeconomic reports (ISM indices in the manufacturing and non-manufacturing sectors, the ADP report, the consumer confidence indicator). According to preliminary forecasts, all these indicators will be disappointing, showing anti-records. Last week, devastating data on the labor market were released (an increase in the number of applications for unemployment benefits by three million). A devastating indicator in the field of production was published today – the production activity of the Federal Reserve Bank of Dallas fell to a record low (-70 points). If the key indicators come out even weaker than the weak forecasts, the dollar may again be under pressure.

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Thus, in order to open short positions with an approximate target of 1.0880, traders need to ensure the strength of the downward movement. To do this, the bears need to overcome the upper limit of the Kumo cloud on the daily chart, that is, break through the 1.1005 mark, consolidating below. In this case, sellers will open a path to the lower boundary of the specified cloud – to the price target of 1.0880. Since at the moment the downward momentum has stalled, sales look risky – selling can only be considered in the area of 1.0990–1.0980.

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EUR/USD and GBP/USD. March 30. Results of the day. Trump extends quarantine in the US, death toll can range from 100-200,000

Trading 30 mar 2020 Commentaire »

4-hour timeframe

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Average volatility over the past five days: 171p (high).

The EUR/USD pair ends the first trading day of the week with a downward correction. Today, the pair passed 134 points, and such a day can be considered a boring Monday in current conditions. Judge for yourself, no important macroeconomic statistics were published today. There were also no high-profile events or actions of governments and the central bank. So a correction is logical, but when was the last time the markets behaved logically? Today's correction, therefore, is not a sign that the markets are coming back to normal. We still believe that the entire currency market, every currency pair, and much of the world now depends on the rate of spread of the coronavirus and the results of the fight against the epidemic. Unfortunately, people still have nothing to brag about in the fight against the virus. The growth rate of the spread of the pandemic can be slightly moderated, but they are still exponential. And is it possible? After all, as before, in order to talk about more or less accurate numbers affected by the COVID-2019 virus, you need to simultaneously make tests for the entire population of the planet. Moreover, each country must provide truthful data on the number of cases, and this is also often a problem. In general, it's impossible to calculate exactly how many people in the world or in one country or another are infected. Simple logic suggests that if official numbers show that there are 740,000 who are sick, then the real statistics are much worse. It always happens. The United States is slowly approaching the 150,000 mark of patients. Not a single country in the world, except China, has so far announced that the growth rate of the epidemic is beginning to decline. Australia made a similar statement, but it is still too early to draw such conclusions. You need to wait at least a week or two, and if after this time the growth rate of the pandemic does not begin to grow again, then it can really be recognized that the disease is receding. In Europe and the United States, this moment is still very far away. US President Donald Trump believes that the peak of the epidemic will take place in two weeks. That is, for another two weeks, Americans will become infected with a new disease (which, according to the latest data, is not so new) at an exponential rate. It is easy to calculate that if the incidence per day is about 20%, then after eight days the total number of infected Americans will be 600,000. Trump also made a statement that is very difficult to perceive without surprise. He said that the work of the US government can be evaluated positively if 100 to 200 thousand Americans die from the COVID-2019 virus. According to the US president, if the authorities did not take any measures, then the mortality rate would be at least 2.2 million people. It's hard to say how Trump got these numbers. Moreover, the wording itself is strange. What does it mean "if the authorities hadn't done anything"? Why then do we need power? Moreover, at the moment, around 30,000 people have died from the coronavirus worldwide. Trump admits the loss of 100-200,000 Americans. If, considering that the mortality rate from the virus is on average 5%, then, according to Trump, approximately 2 to 4 million US residents will be infected. Also, Trump extended the restrictive measures in connection with the epidemic until April 30. Thus, on the one hand, the next forecasts from the US leader did not materialize (he previously stated that the coronavirus would not survive the warm season and that the United States would get rid of this scourge by Easter), on the other hand, American residents can breathe easy, no one is not going to drive to work yet. It seems that the US leader nevertheless took into account the absurdity of such a move.

4-hour timeframe

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Average volatility over the past five days: 333p (high).

You could say that the GBP/USD pair is in one place. If you just look at the illustration, it is obvious that the pair practically did not move during the day. However, in fact, it went from the lowest to the highest of the day at 150 points. This is more than the usual volatility of the pound. Thus, despite a certain calm of the markets on Monday, we believe that it is still a long way to the conclusion that the panic is over. Meanwhile, the EU is increasingly starting to talk about extending the transition period for Brexit. David McAllister, who leads the European Parliament's Brexit group, said: "The EU is open to extend the transition." But the ball is now on the British side. So far, the UK government has rejected this option. However, in the current circumstances, London must reconsider its response on the extension." It is still difficult to say at all how the negotiations between Brussels and London will end, given the global pandemic. It seems that, despite the completion of the parties to continue negotiations in the audio and video conferencing modes, the negotiations are suspended. If so, it is likely that London will really have to extend the transition period by two years. In any case, the coronavirus pandemic must first be overcome.

From a technical point of view, a microscopic correction began against an upward trend. The MACD indicator has turned down, but the correction is more lateral. The nearest targets and levels of volatility are quite far away. If volatility continues to decline, this will be great news for market participants, as it will mean that there will be some reassurance.

Recommendations for EUR/USD:

For long positions:

The euro/dollar began to adjust on the 4-hour timeframe. Thus, it is recommended to buy the euro in case the MACD indicator turns up or bounces off the Kijun-sen line with the target level of 1.1310.

For short positions:

It will be possible to sell the EUR/USD pair no earlier than consolidating the price below the important lines of Senkou Span B and Kijun-sen. The first goal is the support level of 1.0799.

Recommendations for GBP/USD:

For long positions:

The pound/dollar took a pause and did not start a downward correction. Thus, it is recommended to buy the British pound with the goal of a volatility level of 1.2785 after the MACD indicator turns up or to remain in longs until a more eloquent signal for correction.

For short positions:

It will be possible to sell the GBP/USD pair not earlier than when the bears overcome the critical line with the first goal, the support level is 1.1771 and in small lots, since the price will be inside the Ichimoku cloud at this time.

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EURUSD remains in bullish trend.

Trading 30 mar 2020 Commentaire »

EURUSD has pulled back after reaching very close to our target at 1.1160. Price made a higher high at 1.1147 and has since then pulled back towards 1.1011 without making a lower low. The important short-term trend line support remains intact.

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Red line - resistance trend line (broken)

Blue lines - bearish divergence

Black line -expected price path

Green line - support trend line

EURUSD remains above the green trend line confirming short-term trend is bullish. Price has made a new higher high but the RSI did not follow. This is a bearish warning. However I believe the most probable scenario would be for price to move for new higher high above the 61.8% Fibonacci retracement and then reverse to the downside breaking the green trend line and the previous higher lows. If price breaks below the green trend line before making a new higher high then we turn immediately bearish targeting 1.06-1.07 area for at least a test of recent lows.

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Short-term Ichimoku cloud indicator analysis of Gold

Trading 30 mar 2020 Commentaire »

Gold price seems to have stabilized its advance around $1,620. Price is moving mostly sideways the last couple of sessions, but I expect price to roll over downwards soon and break below $1,600 towards $1,570.

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Gold price is above the 4 hour Kumo (cloud) but vulnerable to a move lower. Price is below the tenkan-sen (red line indicator). A 4 hour close below the kijun-sen (yellow line indicator) will increase chances of a move towards cloud support at $1,570. This is our first target if we see a solid close below $1,610.

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Pink lines - bearish divergence

Black line -possible price path

Blue horizontal lines - Fibonacci retracement levels

Gold price is trading around the 61.8% Fibonacci retracement. As long as price holds above $1,600-$1,610, we favor a push towards $1,640-50 to complete a triple top bearish divergence....assuming the RSI does not make a higher high and gets rejected by the pink resistance trend line. Gold could make a new top at the 78.6% Fibonacci retracement but it is not necessary. In any case I'm expecting Gold to move lower over the next couple of weeks.

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U.S. Pending Home Sales Unexpectedly Jump 2.4% In February

Trading 30 mar 2020 Commentaire »

Pointing to a healthy housing market before the coronavirus-induced shutdown, the National Association of Realtors released a report on Monday showing an unexpected jump in pending home sales in the month of February.

NAR said its pending home sales index surged up by 2.4 percent to 111.5 in February after spiking by 5.3 percent to an upwardly revised 108.9 in January. The continued increase surprised economists, who had expected pending home sales to pull back by 1.0 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

However, NAR chief economist Lawrence Yun noted the latest data does not capture the significant fallout from the coronavirus pandemic or the measures taken to control the outbreak.

"Numbers in the coming weeks will show just how hard the housing market was hit, but I am optimistic that the upcoming stimulus package will lessen the economic damage and we may get a V-shaped robust recovery later in the year," Yun said.

The unexpected increase in pending home sales reflected growth in all four regions, with pending sales in the West and Midwest jumping by 4.6 percent and 4.5 percent, respectively.

Pending home sales in the Northeast also advanced by 2.8 percent, while pending sales in the South inched up by 0.1 percent.

Last Tuesday, the Commerce Department released a separate report showing new home sales pulled back sharply in the month of February.

The Commerce Department said new home sales tumbled by 4.4 percent to an annual rate of 765,000 in February after spiking by 10.5 percent to an upwardly revised rate of 800,000 in January.

With the upward revision, the annual rate of new home sales in January was the highest since reaching 842,000 in May of 2007.

Economists had expected new home sales to slump by 1.8 percent to a rate of 750,000 from the 764,000 originally reported for the previous month.


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Dollar Little Changed After U.S. Pending Home Sales Data

Trading 30 mar 2020 Commentaire »

The U.S. pending home sales data for February has been released at 10:00 am ET Monday. The greenback changed little against its major rivals after the data.

The greenback was trading at 1.1029 against the euro, 1.2378 against the pound, 0.9569 against the franc and 107.88 against the yen around 10:05 am ET.


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*U.S. Pending Home Sales Jump 2.4% In February

Trading 30 mar 2020 Commentaire »

U.S. Pending Home Sales Jump 2.4% In February


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Dollar Mixed Before U.S. Pending Home Sales Data

Trading 30 mar 2020 Commentaire »

The U.S. pending home sales for February are due at 10:00 am ET Monday. Ahead of the data, the greenback traded mixed against its major rivals. While the greenback held steady against the pound, it rose against the rest of major rivals.

The greenback was worth 1.1022 against the euro, 1.2397 against the pound, 0.9573 against the franc and 107.95 against the yen at 9:55 am ET.


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German Inflation At 4-month Low

Trading 30 mar 2020 Commentaire »

Germany's consumer price inflation eased to its lowest level in four months in March, led by a fall in energy prices, preliminary figures from Destatis showed on Monday. The consumer price index rose 1.4 percent year-on-year after a 1.7 percent increase in each of the previous two months.

The latest inflation rate was the lowest since November, when it was 1.1 percent. Energy prices fell 0.9 percent year-on-year after a 2 percent rise in February. This was the first fall since December. Food inflation accelerated to 3.7 percent from 3.3 percent. Services charges rose 1.4 percent after a 1.6 percent climb in the previous month. The harmonized index of consumer prices, or HICP, rose 1.3 percent year-on-year in March after a 1.7 percent increase in February. That was the lowest since November, when it was 1.2 percent. Both the CPI and the HICP edged up 0.1 percent each from the previous month.

The statistical office assured good data quality pointing out that data collection for consumer price production was affected only marginally by the coronavirus pandemic in March 2020, except for some regional bottlenecks, as prices are generally collected over a minimum period of one week around mid-month.

Destatis is set to release the final results for March April 16.


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U.S. Dollar Higher On Virus Fears

Trading 30 mar 2020 Commentaire »

The U.S. dollar advanced against its major counterparts in the European session on Monday, as investors rushed to safe-haven assets amid worries that shutdowns related to the outbreak could last for months.

Recession worries resurfaced as Spain became the third country to surpass China in coronavirus infections after the United States and Italy.

Together, Spain and Italy have registered around half of the world's total COVID-19 deaths, which according to Johns Hopkins University, have crossed 34,000.

As new infections in U.S. soar, the White House on Sunday warned that a total of 100,000 to 200,000 Americans could eventually succumb to the virus in a worst-case scenario in two weeks coinciding with Easter weekend.

"It's possible. It's entirely possible that would happen if we don't mitigate. What we're trying to do is to not let that happen," America's top infectious diseases doctor, Anthony Fauci said at a White House briefing in the Rose Garden on Sunday.

The pandemic has already driven the global economy into recession and countries must respond with "very massive" spending to avoid a cascade of bankruptcies and emerging market debt defaults, IMF chief Kristalina Georgieva said Friday.

The greenback climbed to 108.24 against the yen, from near a 2-week low of 107.12 seen at 10:15 pm ET. The next possible resistance for the greenback is seen around the 110.00 level.

The greenback rebounded to 0.9574 against the franc, following a decline to 0.9502 in the Asian session, which was the lowest since March 17. If the greenback rallies again, 0.98 is seen as its next resistance level.

The greenback gained to 1.1045 per euro, compared to 1.1132 hit late New York Friday. The greenback is likely to locate resistance around the 1.08 level.

Survey from the European Commission showed that Eurozone economic confidence logged its strongest monthly decline on record in March as the spread of coronavirus weighed across all sectors.

The economic confidence index fell sharply to 94.5 in March from 103.4 in February. However, the reading was above economists' forecast of 91.6.

The greenback strengthened to 1.2317 against the pound and held steady thereafter. At Friday's close, the pair was worth 1.2449.

Data from the Bank of England showed that UK mortgage approvals increased to a more than six-year high in February.

The number of mortgages approvals rose to 73,546 in February from 71,344 in January. This was the highest level since January 2014.

The greenback was up against the loonie at 1.4147. Next immediate resistance for the dollar is seen near the 1.46 level.

The greenback held steady against the aussie and the kiwi, after rising to 1.6113 and 0.5993, respectively in the Asian session. The greenback had ended last week's deals at 1.6165 against the aussie and 0.6040 versus the kiwi.

U.S. pending home sales for February are due in the New York session.


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