EUR/USD. IMF report, Italian showdown and the whims of the foreign exchange market

Trading 26 Jan 2021 Commentaire »

The US dollar once again confirmed its reputation of an unreliable ally: over the past three weeks, the US currency has shown undulating price movements. The dollar index starts from the bottom of the 90th figure and has been gradually (but almost continuously) growing for several days, reflecting investors' interest in the greenback. But as soon as the index reaches the range of 90.50-90.70, the dollar falls under a wave of sales, plunging down. Of course, this price dynamics is not only due to technical factors – first of all, traders react to the rapidly changing fundamental background. The market rushes from extreme to extreme: interest in a safe dollar is growing, then sharply decreasing. The US currency, accordingly, obeys the whims of traders.

For example, Tuesday morning, the greenback was steadily gaining momentum throughout the market amid rising anti-risk sentiment. Market participants were alarmed by new research data on the South African strain of coronavirus, which has already been recorded in many countries around the world. According to scientists, this strain is more resistant to antibodies and poses a risk of re-infection. The second conclusion of virologists is even worse than the first: in their opinion, the developed vaccines may be ineffective against the South African strain. And although the above assumptions were made in a hypothetical way (since the research is still ongoing), the reaction of traders was not long in coming. The safe-haven dollar has once again become the market's favorite, while risky assets have been hit by a wave of sell-offs.

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Looking ahead, take note that such fundamental factors (of an emotional nature) have a short shelf life. For example, in early January, the dollar was the beneficiary of the political crisis in the United States, when Trump supporters stormed the Capitol. The unprecedented nature of the situation itself frightened investors, afterwards the demand for a safe greenback significantly increased. But just a few days later, this momentum began to gradually fade. The fears of American security forces and law enforcement officers about possible sabotage by the far-right did not materialize, although the FBI reports indicated such risks. The inauguration was held in normal mode, after which political life in the United States returned to its usual course. The dollar, in turn, was again left out of business.

This week, the US currency fell into a similar trap. The panic mood associated with the South African strain of coronavirus allowed dollar bulls to show character – but the impulsive growth of the dollar index faded as soon as it began. The unexpectedly positive report from the IMF has brought back interest in risky assets.

The International Monetary Fund today revised its forecast for global economic growth this year. If earlier the Fund expected to see growth of 5.2% this year, now this figure is 5.5%. As you can see ,the growth was only 0.3% compared to the October forecast. But against the background of widespread repeated knockdowns, mutated strains of coronavirus and other negative echoes of last year, the very fact of improving the forecast (albeit in minimal execution) increased the overall risk appetite in the market. Explaining its decision to revise the forecast, the IMF noted that in the second half of last year, the world economy "revived more than expected." And although the Fund's report is dominated by worrying notes (in this context, the next coronavirus waves and new strains of the virus are mentioned), the market focused on the overall headline of a positive nature.

If we directly talk about the EUR/USD pair, buyers could not fully take advantage of the general decline of the dollar. First, the political crisis in Italy remains on the agenda, which has only worsened today. Prime Minister Giuseppe Conte has resigned, which has already been confirmed by President Sergio Mattarella. It is noteworthy that Conte managed to avoid declaring a vote of no confidence in his government in parliament – he was supported in both houses of the legislature. But at the same time, the head of government lost an absolute majority in the Senate after his former ally, former Prime Minister Matteo Renzi, left the coalition. Now the situation is hanging in the air, and the pendulum can swing both in one direction and in the other. Either Giuseppe Conte will create a new coalition, or the country will hold early parliamentary elections. It is known that the center-left Democratic Party and the 5-Star movement have already announced their support for Conte. However, in order to organize a stable parliamentary majority, the prime minister needs to attract additional political allies to the alliance.

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This factor does not make it possible for buyers of EUR/USD to return to the area of the 22nd figure. Traders retreated from local lows, but the growth momentum did not continue. By the way, ironically, the IMF report weighed on both the dollar the euro. The fact is that the IMF has lowered its forecasts for the eurozone countries in 2021 by one percent at once – to 4.2% from the previous value of 5.2%.

Thus, the Italian political showdown, as well as the controversial (for the euro) IMF report, cooled the ardor of buyers of EUR/USD. Nevertheless, in my opinion, the pair remains within the framework of an upward movement - primarily due to the vulnerability of the US currency. To confirm the growth trend, the pair's bulls need to settle above the 1.2200 mark (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart). In this case, we can consider long positions with the main target at 1.2330 - this is the upper line of the Bollinger Bands on the same timeframe.

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Is it worth buying the euro before the Fed’s rate decision

Trading 26 Jan 2021 Commentaire »

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The western platforms showed mixed dynamics on Tuesday. The focus is on corporate reports in the US. The season has just started, and the reaction to the data will determine the succeeding movement of the markets. Despite the fact that investors recently prefer to take profits, the balance is still shifted in favor of positive sentiment.

The dollar fell during the US session after some attempts to grow in the afternoon. The US currency has periodically tried to move forward over the past three weeks, thus demonstrating the possibility of changing the trend. However, you should not rush to conclusions, however, as well as stand up in advance against the current downward trend. We have yet to receive proper signals about the change in the trend for the greenback.

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The EUR/USD pair mostly runs around the 1.21 mark, at times threatening to fall below this level and break the upward trend. So far, buyers of the euro have managed to regain only a third of the growth from the last momentum since last November. There are also no confirmatory signals about a possible breakdown of the growth momentum.

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Now the focus is on the Federal Reserve meeting. Before the results of the meeting are announced, traders are unlikely to be active or change their strategy. Markets may be concerned about the lack of support from the Fed and the lack of stimulus from the White House. Whether this is true or not will be judged by their reaction to the decision and the comments of the regulator's officials.

No changes are expected in the policy of the US central bank. The publication of new economic forecasts is also not planned. Fed Chairman Jerome Powell is likely to draw attention to inflation. However, there will be no surprises here. Powell and other high-ranking financiers have in fact already spoken out on this topic in recent days. They said that there is no need to worry too much about the upcoming price increase. If inflation rises above the 2% target this year, it probably won't stay high for long.

Meanwhile, the current levels of the euro against the dollar may be interesting to buy. This can be explained by the fact that in the interbank market in London and New York, the rates on dollar loans are still significantly lower than the Fed rate. Bankers still have a surplus of dollar liquidity.

But do not forget that the Fed will announce its verdict on monetary policy on Wednesday, so investors are unlikely to rush to open positions.

As for the pandemic, it seems that stabilization is being planned in this direction. In the last two days, the number of infected people has not exceeded 460,000 after the peak in mid-January. In addition, a large-scale vaccination is expected to begin in two months. This, coupled with the warm weather will help to smooth out the curve in the incidence of coronavirus. This is good news for financial markets, but the dollar, as a funding currency, will not like such news.

The resignation of the Italian government could affect the euro's position. However, so far, the state securities of Italy and the euro show a very restrained reaction to this scenario. Market players believe a new election is unlikely.

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EUR/USD: euro bends under the load of problems, but does not give up

Trading 26 Jan 2021 Commentaire »

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Last week, short positions on the US currency reached the highest level in almost a decade. Since then, however, risk sentiment has eased somewhat, as investors have doubts about whether a large U.S. economic aid package can get through Congress and whether COVID-19 vaccines can turn the tide against the pandemic.

The cautious move to defensive assets pushed the USD index higher. It rose more than 0.1% the day before, growing above 90.4 points and reaching a nearly one-week high.

"Markets have come a long way hoping that the coronavirus will go away and national governments will spend a lot of money. However, progress in both subjects was at a standstill, and the markets went into a standby mode. A breakthrough on one of these issues is needed to give markets direction for the next couple of weeks," Westpac strategists said.

On Monday, key U.S. stock indexes fell sharply on news of potential obstacles to the adoption of a $1.9 trillion stimulus package in the United States. However, this failure was quickly redeemed, allowing the S&P 500 and Nasdaq to close the day higher.

A similar pattern was observed in the foreign exchange market.

Due to delays in the distribution of vaccines in the EU and against the background of falling morale of German businesses, the EUR/USD pair at the moment fell to 1.2120, but then it rebounded to 1.2145.

Business confidence in Germany fell to a six-month low in January, according to a survey conducted by the IFO Institute.

Meanwhile, AstraZeneca announced a significant reduction in the volume of deliveries of the COVID-19 vaccine to the EU in the first quarter of this year, due to a decrease in the amount of vaccine produced at the production facility within the European supply chain.

Vaccine manufacturers Biotech and Pfizer also announced a reduction in supplies due to construction work at a plant in Belgium.

The EUR/USD pair slipped to 1.2110 on Tuesday, but eventually recovered to 1.2170.

Reuters reported that Italian Prime Minister Giuseppe Conte has officially announced his resignation.

The reaction of the main currency pair to this statement was muted, as investors believe that the current situation is likely to lead to the formation of a new coalition government, and not to early elections in the country.

In addition, the market is focused on the Federal Reserve's two-day meeting on monetary policy, which starts today.

It is assumed that the US central bank will keep the interest rate at 0-0.25%, as well as leave the volume of the asset purchase program unchanged and confirm its commitment to an ultra-soft monetary policy.

As for the technical picture, attempts to push EUR/USD are likely to continue to receive strong resistance in the area of 1.2190-1.2200. Furthermore, the resistance is at the 1.2220 level, a clean breakdown of which will lead the pair to 1.2270 and 1.2300.

Meanwhile, the pair's unsuccessful attempts to attack the 1.2200 level can be regarded as a sign of fading bullish momentum. Investors will probably prefer to wait for the quotes to fall below the support area of 1.2075–1.2080 and only then will they open new positions for shorts. In this case, the levels 1.2000 and 1.1960 will come into play.

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Analytics and trading signals for beginners. How to trade GBP/USD on January 27? Analysis of Tuesday. Getting ready for Wednesday

Trading 26 Jan 2021 Commentaire »

Hourly chart of the GBP/USD pair

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The GBP/USD pair continued to move down for some time on Tuesday, January 26, and it only turned up just before this movement had ended. A buy signal was generated from the MACD indicator during the evening, it is circled by the first red circle. Unfortunately, this signal turned out to be false and those who opened long positions on it received a loss of about 22 points. However, the second buy signal, which was created in the daytime, turned out to be strong and real. According to it, novice traders also had to enter the market and stay in it as long as the MACD indicator was directed to the upside (since there was no rebound from any of the target levels). Thus, at the moment, the profit on this signal is about 75 points, which covers the losses on the first trade and leaves newcomers with a total profit of about 45-50 points, which is an excellent result, given the specifics of the current trading. In general, the upward trend continued on Tuesday, and the price not only remained above the trend line, but also crossed the smaller downward trend line and returned to its 2.5-year highs. So now novice traders need to wait for new buy signals.

Several relatively important macroeconomic reports were released in the UK on Tuesday. Take note that all three published reports turned out to be better than the forecasted values, thus, the strengthening of the pound during the day is absolutely logical and reasonable. However, it is quite possible that the British currency would have continued rising even without these reports, as we have said more than once. The UK unemployment rate rose, but grew less-than-expected to 5.0%. Average wages increased by 3.6% against the forecast of +2.9%, and the number of applications for unemployment benefits increased by 7,000 against the forecast of +45,000.

The results of the Federal Reserve meeting will be summed up late in the evening on Wednesday, January 27. We can expect something new considering that this is the first Fed meeting in 2021, as well as the first speech by Jerome Powell this year. However, in any case, the pound/dollar pair will be trading on technical factors until the evening, since no more events are planned for tomorrow. You can leave the market before the very beginning of summing up the results of the Fed meeting, and until that time - trade completely freely.

Possible scenarios on January 27:

1) Buy orders remain relevant as the price continues to be above the trend line. Therefore, you are advised to monitor the formation of buy signals. First, the pair should slightly correct to the downside, after which the MACD indicator should turn up and in this case, you should open long positions while aiming for 1.3713 and 1.3755.

2) Selling is not recommended right now, as the upward trend is maintained for the GBP/USD pair. You can open short positions when the price finally settles below the rising trend line. Targets in this case can be located near the 1.3563 level.

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 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.

Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.

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

*Hungary CB Leaves Key Rate Unchanged At 0.60% As Expected

Trading 26 Jan 2021 Commentaire »

Hungary CB Leaves Key Rate Unchanged At 0.60% As Expected


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IMF Boosts Global Growth Forecast On Hopes Of Pandemic Turnaround

Trading 26 Jan 2021 Commentaire »

Global economy is set to expand at a faster rate this year than expected earlier as vaccination against the coronavirus could strengthen activity later this year, underpinned by further policy support, the International Monetary Fund said Tuesday. In its latest World Economic Outlook report, the lender raised the global growth forecast for this year to 5.5 percent from 5.2 percent seen in October. World economic growth is projected at 4.2 percent in 2022. The IMF estimated 3.5 percent contraction in global growth in 2020, which was better than the 4.4 percent shrinkage seen in October. The revision reflects the stronger-than-expected momentum in the second half of 2020, the lender said. "There remains tremendous uncertainty and prospects vary greatly across countries," IMF Chief Economist Gita Gopinath said. The latest forecast reflect expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies, the IMF said. Further, access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis could led to significant variations in the strength of the recovery across countries, the report added. "Greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support can worsen outcomes," Gopinath said. "If downside risks were to materialize, a tightening of financial conditions could amplify the downturn at a time when public and corporate debt are at record highs worldwide."

The IMF stressed the need for strong multilateral cooperation to bring the pandemic under control across the world.

The U.S. growth projection for this year was raised sharply to 5.1 percent from 3.1 percent. Growth is projected to slow to 2.5 percent next year. Eurozone's growth forecast for this year was lowered to 4.2 percent from 5.2 percent. The projections for the big four euro area economies were also revised down. The single currency economy is forecast to grow 3.6 percent in 2022.

For Japan, the growth outlook for this year was raised to 3.1 percent from 2.3 percent. Next year, growth is seen at 2.4 percent. The forecast upgrade for both the U.S. and Japan were largely due the support from additional fiscal measures. The downgrade for the euro area reflected an observed softening of activity toward the end of last year, which is anticipated to continue into early 2021 amid rising infections and renewed lockdowns.

The growth forecast for the UK for this year was cut to 4.5 percent from 5.9 percent. The pace of growth is seen improving to 5 percent next year. Activity is expected to remain below end-2019 levels into 2022, the report said.

China's growth forecast for this year was slightly lowered to 8.1 percent from 8.2 percent. Effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery, the IMF said. Growth is seen slowing to 5.6 percent next year. India is projected to log the strongest growth among the main economies. The economy is seen expanding 11.5 percent this year, which is a significant upgrade to the 8.8 percent growth predicted in October. The upgrade reflects carryover from a stronger-than-expected recovery in 2020 after lockdowns were eased, the IMF said. Growth is seen slowing sharply to 6.8 percent in 2022.


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U.S. Consumer Confidence Unexpectedly Improves In January

Trading 26 Jan 2021 Commentaire »

Reflecting an increase in optimism about the short-term economic outlook, the Conference Board released a report on Tuesday unexpectedly showing an improvement in U.S. consumer confidence in the month of January.

The Conference Board said its consumer confidence index climbed to 89.3 in January from a downwardly revised 87.1 in December.

The increase surprised economists, who had expected the index to edge down to 88.5 from the 88.6 originally reported for the previous month.

The unexpected rebound by the headline index came as the expectations index jumped to 92.5 in January from 87.0 in December.

The percentage of consumers expecting business conditions to improve over the next six months increased to 33.7 percent from 29.5 percent, while those expecting business conditions to worsen fell to 18.1 percent from 22.0 percent.

The outlook for the job market also improved, with consumers expecting more jobs in the months ahead rising to 31.3 percent from 28.0 percent, while those anticipating fewer jobs dipped to 21.4 percent from 22.2 percent.

Meanwhile, the report said the present situation index slid to 84.4 in January from 87.2 in December, suggesting consumers' appraisal of current conditions weakened further during the month.

The percentage of consumers claiming business conditions are "good" inched up to 15.8 percent from 15.4 percent, but those claiming business conditions are "bad" also rose to 42.8 percent from 39.7 percent.

Consumers' assessment of the labor market was also less favorable, with the percentage of consumers saying jobs are "plentiful" edging down to 20.6 percent from 21.0 percent and those claiming jobs are "hard to get" rising to 23.8 percent from 22.9 percent.

"Consumers' appraisal of present-day conditions weakened further in January, with COVID-19 still the major suppressor," said Lynn Franco, Senior Director of Economic Indicators at the Conference Board.

She added, "Consumers' expectations for the economy and jobs, however, advanced further, suggesting that consumers foresee conditions improving in the not-too-distant future."

On Friday, the University of Michigan is scheduled to release its revised reading on consumer sentiment in the month of January.

Economists expect the consumer sentiment index for January to be unrevised from the preliminary reading of 79.2, which was down from 80.7 in December.


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*U.S. Consumer Confidence Index Climbs To 89.3 In January

Trading 26 Jan 2021 Commentaire »

U.S. Consumer Confidence Index Climbs To 89.3 In January


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*S&P CoreLogic Case-Shiller 20-City Home Price Index Up 9.1% YoY In November

Trading 26 Jan 2021 Commentaire »

S&P CoreLogic Case-Shiller 20-City Home Price Index Up 9.1% YoY In November


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Dollar Little Changed After U.S. Housing Data

Trading 26 Jan 2021 Commentaire »

Federal Housing finance agency's house price index and S&P/Case-Shiller home price index for November have been released at 9:00 am ET Tuesday. Following these data, the greenback changed little against its major counterparts.

The greenback was trading at 1.2160 against the euro, 103.66 against the yen, 0.8876 against the franc and 1.3707 against the pound around 9:02 am ET.


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