EUR/USD. « Holiday turmoil » in Washington and anticipation of the January ECB meeting

Trading 20 Jan 2021 Commentaire »

So, Joe Biden is the 46th president of the United States. All the procedural formalities were left behind: the leader of the Democrats took the oath of office and delivered the first speech as the head of state. And although it is a de facto ceremonial process, the markets reacted too nervously to what was happening. In particular, the dollar impulsively moved up and down, while not leaving the 100-point range (against the euro). Perhaps this is due to the fact that today was the final point in a long and difficult election campaign, which for many months exhausted not only politicians, but also many investors and traders. Well, in fairness, it should be noted that the "Trump era" has finally ended - at least for the next four years.

And here we can recall the behavior of the foreign exchange market when Donald Trump took office in 2017. He traditionally delivered the inaugural address, where the "red line" was one phrase - "America first". His speech was bright and promising. It is thanks to many of his promises that the dollar has grown after all, immediately after the election, he spoke about fiscal stimulus, tax cuts, pouring trillions of dollars into the country's infrastructure, and so on. Inspired traders have already independently supplemented this logical series – the recovery of the economy, rising inflation, high rates of monetary policy tightening. And as a result - the rise in the price of the dollar. As often happens, the foreign exchange market was ahead of events and pushed the greenback up in advance, starting only from the declared intentions.


However, just a few weeks later, optimism among traders ran out and the market felt the need for specifics. If fiscal stimulus – on what scale? If there is a tax cut, what kind of tax cuts? If we are developing the infrastructure – how fast and in what time frame? And so on. As a result, for almost the entire 2017 year (from February to November), the dollar consistently fell in price: for example, the EUR/USD pair rose by one and a half thousand points - from the borders of the fifth figure to annual highs around the 1.2050 mark.

Of course, it is impossible to talk about any cyclical nature regarding the long-term prospects of the dollar. But at the moment investors are similarly situated in a good mood, which is reflected in the dynamics of the stock market. In the run-up to Biden's inauguration, the major Wall Street indexes were heading for record highs: the Dow Jones industrial average rose 200 points, the S&P 500 index rose 1% (updating the daily record), and the Nasdaq Composite index jumped 1.6%. At the same time, the yield of treasuries is declining, as is the demand for a safe dollar.

Given the background of the issue, we can assume that all the fundamental factors that currently move the markets are emotional, and, therefore, unstable. In the very near future, traders will leave behind the inaugural experiences and focus on more mundane aspects.

If we directly talk about the euro-dollar pair, then the focus will be on the European Central Bank meeting, which will be held on Thursday, January 21. According to the overwhelming majority of experts, the first ECB meeting for this year will be of "passing". Take note that at the previous meeting, members of the ECB decided to increase the volume of the asset purchase program by 500 billion euros, that is, to 1,850,000,000 euros. Given this step, which was taken only a few weeks ago, it is highly likely that the ECB will take a wait-and-see position.

At the same time, ECB President Christine Lagarde can even voice relatively optimistic rhetoric, despite the decline in key inflation indicators. Cautious optimism may be associated with the mass vaccination against coronavirus, which started at the end of December in many EU countries. Pay attention to the ZEW indices that was recently published: the pan-European index of business sentiment rose to 58 points (contrary to forecasts of a decline to 53 points), and the German index-immediately to 61.8 points (a four-month high). It is likely that Lagarde will also focus on positive medium-term prospects, setting off negative macroeconomic releases. The ECB's wait-and-see attitude is also supported by the fact that the central bank has taken (collectively) quite large-scale measures, while excessive monetary stimulus is fraught with side effects.


Some currency strategists warn that Lagarde may worry about the negative impact of the high euro exchange rate on already low inflation. But here it is worth recalling that similar risks were voiced on the eve of the December meeting. While Lagarde stressed that the central bank does not set a target rate of the euro, so it will not artificially underestimate its value. The market is likely to ignore the "standard" phrase that the central bank is monitoring the situation related to the exchange rate of the single currency.

Thus, against the background of pessimistic expectations, the ECB meeting may support the EUR/USD pair, even if it turns out to be "passable". This will allow buyers to approach the first resistance level of 1.2205 again (the middle line of the Bollinger Bands, which coincides with the Kijun-sen line on the daily chart). If the pair's bulls can overcome this level, the price, firstly, will be between the middle and upper lines of the Bollinger Bands indicator on D1, and secondly, the Ichimoku indicator will form a bullish Parade of Lines signal, opening the way to the upper line of the Bollinger Bands, coinciding with the mark of 1.2330 in the medium term.

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Analytics and trading signals for beginners. How to trade EUR/USD on January 21? Analysis of Wednesday. Getting ready for

Trading 20 Jan 2021 Commentaire »

Hourly chart of the EUR/USD pair


The EUR/USD pair continued its upward movement on Wednesday, but after reaching the resistance level of 1.2157, it turned down and started a round of correction that we mentioned in the previous articles. Since the correction was quite deep, and the downward trend was canceled, then we should expect a new buy signal from the MACD in the coming hours, which is sufficiently discharged to create a strong signal. In general, the pair retains good chances for an upward movement, since the demand for the US dollar as a whole remains rather low. In the morning article, we advised you to consider long positions, but a buy signal was not generated during the day. In order to be able to open short positions, we advised you to wait for the unambiguous end of the upward trend, which also did not happen during the day.

The consumer price index for December was published in Europe. Traders were disappointed with how boring this report was, as the value of the indicator remained unchanged in comparison with the previous period. Thus, we cannot conclude that the euro fell today due to the inflation report. Simply because all the latest reports have been ignored, like so many others. Of course, purely theoretically, the consumer price index could provoke a fall in the euro, even the timing is approximately the same. But for now, we're not giving it much of a chance. No more reports during the day. Approximately at the same time, the inauguration of Joe Biden is taking place in America, but this event is unlikely to be somehow connected with the dollar's growth during the day. At least, we do not see an unambiguous connection.

The European Union will sum up the results of the European Central Bank meeting. No important decisions are expected, so the press conference after the announcement of the results will be more interesting. We might receive information that we have not heard before, although we are inclined to believe that the meeting will be of "passing". The report on applications for unemployment benefits in the United States will be more interesting. A week earlier, the number of orders significantly exceeded the forecasted values, so if a similar trend is noted this week, it could create pressure on the US dollar, which coincides with our expectations of a fall in this currency.

Possible scenarios on January 21:

1) Long positions became relevant since the price settled above the descending channel. However, novice traders are advised to wait for a new buy signal from the MACD indicator. If such is formed, then you are advised to trade upward while aiming for resistance levels 1.2157 and 1.2187 (will be specified Thursday morning).

2) Trading for a fall is currently canceled. Now, to resume trading down, the new upward trend must be undoubtedly reversed. To do this, an ascending channel or trend line must be formed and then canceled. Or, the price should fall below the current local low of 1.2055. Nothing of the kind is expected, at least until Thursday morning.

On the chart:

Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.

Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.

Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.

The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).

Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.

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U.S. Homebuilder Confidence Unexpectedly Drops In January

Trading 20 Jan 2021 Commentaire »

Reflecting concerns about rising material costs and the resurgence of the coronavirus, the National Association of Home Builders released a report on Wednesday showing an unexpected drop in U.S. homebuilder confidence in the month of January.

The report said the NAHB/Wells Fargo Housing Market Index fell to 83 in January after sliding to 86 in December. The continued decline surprised economists, who had expected the index to come in unchanged.

With the unexpected decrease, the housing market index pulled back further off the record high of 90 set in November.

"While housing continues to help lead the economy forward, limited inventory is constraining more robust growth," said NAHB Chief Economist Robert Dietz.

He added, "A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability."

The unexpected drop by the headline index reflected decreases by all three of the component indices, with the gauge charting traffic of prospective buyers showing a notable decline to 68 in January from 73 in December.

The index gauging current sales conditions and the component measuring sales expectations in the next six months both fell by two points to 90 and 83, respectively.

"Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems," said NAHB Chairman Chuck Fowke.

"Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices," he added. "They are also concerned about a changing regulatory environment."

On Thursday, the Commerce Department is scheduled to release a separate report on new residential construction in the month of December.

Housing starts are expected to rise to an annual rate of 1.560 million in December from 1.547 million in November, while building permits are expected to drop to a rate of 1.604 million from 1.635 million.

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Cyprus HICP Inflation Remains Negative

Trading 20 Jan 2021 Commentaire »

Cyprus's EU measure of inflation remained in the negative territory for the ninth month in a row in December, preliminary data from the statistical office showed on Wednesday.

The harmonized index of consumer prices, or HICP, fell 0.8 percent year-on-year after a 1.1 percent decline in the previous month.

The index has been falling since April. The rate of decline has eased since the 2.9 percent slump in August.

In December, the decline continued to the led by utility costs that fell 5.3 percent. Transport costs dropped 3.5 percent.

Compared to the previous month, the HICP dropped 0.4 percent in December after a 0.8 percent decline in November.

Separately, the statistical office reported that industrial turnover decreased 8.3 percent year-on-year in October.

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Luxembourg Jobless Rate Rises In December

Trading 20 Jan 2021 Commentaire »

Luxembourg's unemployment rate rose in December, after remaining steady in the previous month, latest figures from the statistical office showed on Wednesday.

The seasonally adjusted jobless rate rose to 6.4 percent from 6.3 percent in each of the previous two months. In September, the rate was at 6.4 percent.

The rate had peaked at 6.9 percent in April.

In December 2019, the unemployment rate was 5.3 percent. The number of unemployed rose to 19,089 persons in December from 18,812 in the previous month.

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*Bank Of Canada To Hold Current Level Of Policy Rate Until Inflation Objective Is Achieved

Trading 20 Jan 2021 Commentaire »

Bank Of Canada To Hold Current Level Of Policy Rate Until Inflation Objective Is Achieved

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*Bank Of Canada Holds Target For Overnight Rate At Effective Lower Bound Of 0.25%

Trading 20 Jan 2021 Commentaire »

Bank Of Canada Holds Target For Overnight Rate At Effective Lower Bound Of 0.25%

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*U.S. Housing Market Index Dips To 83 In January

Trading 20 Jan 2021 Commentaire »

U.S. Housing Market Index Dips To 83 In January

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Loonie Little Changed Following Canada CPI

Trading 20 Jan 2021 Commentaire »

After the release of Canada consumer inflation for December at 8:30 am ET Wednesday, the loonie changed little against its major counterparts.

The loonie was trading at 1.5376 against the euro, 81.71 against the yen, 0.9809 against the aussie and 1.2705 against the greenback around 8:31 am ET.

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*Canadian Consumer Price Index Rose 0.7% Year-over-year In December

Trading 20 Jan 2021 Commentaire »

Canadian Consumer Price Index Rose 0.7% Year-over-year In December

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