GBP/USD. Preview of the week. Fed meeting, UK GDP, talkative Donald Trump

Trading 07 juin 2020 Commentaire »

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The British pound also quietly rose in price against the dollar over the past week, and this event is even more surprising than the growth of the European currency. In previous articles, we have already mentioned that the UK's fundamental background has been so alarming in recent months that it's hard to imagine what could have forced market participants to make quite serious and lengthy purchases of British currency. Yes, the situation in the United States is also very complicated. The country is covered by a political crisis, a racist scandal, and Donald Trump, instead of working for the good of his country and nation, is more engaged in "sprinkling mud" on his rival in the upcoming presidential elections of Joe Biden and China. Nevertheless, there are no less political and economic problems in Britain. We have repeatedly spoken about economic problems. The absence of a deal with the European Union, a strong drop in the already weakened "divorce" of the British economy from the European Union due to the pandemic crisis, annual losses of 70-80 billion euros due to Brexit and a host of other amenities. In addition, the government of Boris Johnson, from our point of view, failed the fight against the coronavirus, and also did not achieve any significant victories in almost a year of rule. The only thing that can be credited to Johnson and his team is that Brexit seems to take place, however, did the British want such a divorce from the European Union in 2016? Without agreements, without a deal. Indeed, in fact, Brexit will be "hard", which was blocked by Parliament for three years until the British, by their decision in the parliamentary elections in December 2019, made it clear that they were ready to complete Brexit as soon as possible if it ended soon. As a result, Johnson received unlimited power. But how he disposes of this power is slowly becoming clear. In general, a foggy and rainy future is still hanging over Great Britain. There is little certainty, which is why it is very surprising for us to observe such a strong growth of the pound. Nevertheless, as we have repeatedly said, no currency can go up continuously.

No macroeconomic statistics have been received from the UK over the past two weeks (except for minor business activity indices, which in the current conditions have practically no significance). For most of the new week, Great Britain will still not receive any important information. Britain will finally provide the necessary information for traders only on Friday, June 12. On this day, a report on industrial production for April will be released, which, according to forecasts, will decrease by 18% in monthly terms and by 22% in annual terms. Given the forecasts for industrial production in the EU and Germany, such figures are not even very surprising. Data on GDP for April will also be released on Friday. In monthly terms, the indicator will lose about 20%, in quarterly terms - 12%, in annual terms - 24%. Obviously, such statistics are unlikely to support the pound. Even if it is not so disastrous.

The most interesting data and messages for the upcoming week will come from the United States. Take note of the next Fed meeting on Wednesday. The key rate is expected to remain unchanged at 0.25%. Thus, the only question is whether the QE program will be expanded or any new program to stimulate the economy launched? Although, given the fact that the Federal Reserve has already expanded its asset repurchase program to almost limitless proportions with the slogan "how many dollars are needed, we'll print as much," it is unlikely that any changes will follow here. Therefore, the most interesting event will be Fed Chairman Jerome Powell's speech at the press conference. Recall that last week, his ECB colleague Christine Lagarde made several important and interesting statements regarding the prospects for the European economy. Powell can do the same. The Consumer price index for May is also set to be released on Wednesday. According to expert forecasts, in annual terms, inflation will slow down to 0.2%, and core inflation (excluding food and energy prices) will drop to 1.3% y/y. However, inflation at this time is far from the most important, so it is unlikely that traders will pay attention to them.

The United States will issue another report on applications for unemployment benefits on Thursday, which has not caused a strong public outcry in recent weeks, as the numbers continue to decline steadily. Nevertheless, the number of new initial applications for the week of June 6 can still reach 1.5 million. The number of secondary applications is expected at around 20 million, which, in fact, is real unemployment. No important reports are planned for America on Friday.

Thus, from our point of view, the most interesting event of the week will be the Fed meeting and Powell's speech. Traders can ignore all the data, as both economies fall almost synchronously. Next week, events related to the racist scandal in the United States, the confrontation between China and the United States and its development, and, of course, Donald Trump's new matches and tweets will be of greater importance. And of course, the technical picture of the pound/dollar pair will be of great importance. Recall that whatever the fundamental background, whatever the expectations, until market participants get rid of the pound or buy the dollar, the pair will not fall. Thus, we still advise you to follow the trend and consider trading for an increase until the quotes are above the critical line.

In technical terms, the pair continues its upward movement and has reached the volatility level of 1.2727 last Friday. Thus, despite the fact that the correction did not start on the last trading day of the last week, it can still begin on Monday. Turning the MACD indicator down will signal exactly that. The first goal of the correction will be the Kijun-sen line, and if it is crossed, we can expect a change in the trend to a downward one.

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Recommendations for the GBP/USD pair:

As the upward trend continues for the pound/dollar pair, we advise you to continue buying it, using mainly the readings of the 4-hour timeframe. Volatility remains the same, about 100-130 points per day, there are no signs of a new panic. All goals for long positions last week have been reached and overcome. New trading targets will be formed on Monday.

The material has been provided by InstaForex Company - www.instaforex.com

EUR/USD. Preview of the week. Eurozone financial stability has exceeded acceptable risks. Italy national debt will grow to

Trading 07 juin 2020 Commentaire »

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It is vital to take a break following the EUR/USD pair's impressive rally last week. A downward correction seems to have begun on Friday. However, the critical Kijun-sen line has not been reached at the moment, not to mention the moving average line on the linear regression channels trading system. Thus, so far the scale of the correction does not even allow us to conclude that the correction will continue for at least a few days and will not take the form of a banal microscopic pullback. As we already discussed in previous articles, the fundamental and macroeconomic backgrounds are now rather ambiguous. More precisely, traders' reaction are ambiguous to them and it differs depending on the pair or instrument. Thus, we cannot draw an unambiguous conclusion that the cause for the US dollar's fall are the rallies, riots and protests in the United States, because the franc, for example, is not particularly expensive in tandem with the dollar, and the Japanese yen is getting cheaper at all. We can't also say that the US dollar is depreciating due to problems with the American economy (the stock market has recovered after the March collapses), as the European economy is not in the best condition (as confirmed by the last ECB meeting and the speech of Christine Lagarde). Thus, everything could be attributed to technical factors, but in regards to technique, the upward movement turned out to be too strong and recoilless. Thus, we believe that the euro has risen in price over the past week based on a whole set of factors, traders' expectations, and their concerns. Therefore, it is completely impossible to predict when traders will stop paying attention to one or another factor, and the euro will stop growing. Based on this, we believe (as before) that market participants should definitely follow the trend and in no case try to guess the pair's reversal down, guided by the opinion "the euro has already risen in price so much, it will fall further."

The new trading week will begin immediately with several rather interesting reports, although there will be relatively few statistics at its beginning. Germany is set to publish a report on industrial production for April on Monday. If, according to the results of March, the reduction of the indicator amounted to 9.2% in monthly terms, then by the end of April, -15.5% is expected. Thus, the European currency is unlikely to receive support on the first trading day of the week.

One of the important events on Tuesday that we take note of is the eurozone GDP for the first quarter, which is still in an inconclusive version. The forecast is the same at -3.2% in annual terms and -3.8% in quarterly terms. There will be no important macroeconomic statistics in the eurozone on Wednesday, but a Eurogroup meeting is planned on Thursday - finance ministers of the EU member states, the head of the ECB and other first EU financiers. This event can be extremely interesting, since within its framework, a plan to save the EU economy will almost certainly be discussed. Recall that Germany and France's last proposal for 500 billion euros was joyfully approved by the southern countries and rejected by the northern ones. In principle, almost all plans to one degree or another imply that the most financially stable EU members must pay for saving the most affected countries from the epidemic and crisis. This is precisely what does not suit the "most financially stable participants" of the EU. Germany, Austria, the Netherlands, the Scandinavian countries, which are famous for their economy and financial discipline, are not eager to transfer several tens of billions of euros to the "spender" accounts of Spain, Italy, Greece and Portugal. Therefore, they offer only lending to the southerners and what is necessary with the introduction of certain budget restrictions for future years. Naturally, this option is not liked by the southerners themselves, who simply count on getting billions of euros and do not owe anything to anyone. In general, the Eurogroup meeting will discuss issues on this topic.

A report on industrial production in the eurozone is set for the last trading day of the week. Forecasts show that in monthly terms in April the reduction will be 20.6%, and in annual terms - 31.2%. Thus, based on the macroeconomic statistics of the next week, the euro is unlikely to receive support. However, this is the main paradox of the current time - it is unlikely for the United States to provide stronger statistics, which means news from overseas offset the effect of news from Europe. The most interesting event will be the Eurogroup meeting.

At the beginning of the article, we already mentioned that the economic situation in the eurozone is no better than the US one. Last week, the ECB decided to expand the PEPP program by 600 billion euros, that is, almost twice. On the one hand, this money will go to help the economy, which will be able to recover faster (this is good). On the other hand, this means that the scale of the fall of the EU economy is much larger than originally estimated (this is bad). Thus, we do not believe that the ECB's actions could lead to an increase in the euro. The ECB recently issued a report on the financial stability of the EU countries, taking into account the latest changes due to the coronavirus crisis. ECB financiers warn that the consequences of the crisis are now exceeding all expectations and exceed the permissible risks of financial stability. It is expected that in 2020 the profitability of eurozone banks will decrease from 5.4% to 2.4%. Banks will experience problems with liquidity and loans, which will negatively affect their credit ratings. A significant increase in "dead" loans is possible. In addition, the ECB predicts an increase in the sovereign debt of all EU countries in aggregate from 86% of GDP to 102.7%. The budget deficits of the EU countries will grow by 8%. "The pandemic has led to one of the sharpest declines in the economy in recent times. However, the measures of the authorities and regulators avoided a financial collapse. Nevertheless, the consequences of the pandemic on the prospects for bank profitability and the financial situation in the medium term must be accurately assessed so that our financial system can continue to support economic recovery," said ECB Vice President Luis de Guindos.

What is the result? We believe that it is high time for the euro/dollar pair to begin adjusting. However, before the critical line is crossed, any downward movement will have the correction status. It will be possible to start thinking about a downward trend no earlier than overcoming the Kijun-sen line.

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Trading recommendations for the EUR/USD pair:

The technical picture of the EUR/USD pair shows that the price has started a downward movement to the Kijun-sen line. A price rebound from this line will provoke a resumption of the upward movement. All support and resistance levels will be rebuilt on Monday, thus, new trading goals will be obtained. From our point of view, the fundamental and macroeconomic backgrounds next week will not have a significant impact on the movement of the pair. But do not forget that you can always expect "news bombs" while Donald Trump remains the president of the United States.

The material has been provided by InstaForex Company - www.instaforex.com