EUR/USD. Unreliable « backer »: dollar follows Treasury yields

Trading 03 Mar 2021 Commentaire »

The US dollar index is highly correlated with US bond yields. If we compare, for example, the dynamics of the greenback with the graph of the yield curve of 10-year Treasuries, then we can see almost one hundred percent coincidence - at least if we consider the time period of the last trading days.

For example, this morning the yield on bonds slightly decreased, afterwards the dollar index also fell, dropping to the local (daily) low of 90.65. A mirror situation occurred in the afternoon - the greenback spread its wings again, reacting to the situation on the US debt market. Only the negative macroeconomic statistics, which was published in America during the US session, cooled the ardor of dollar bulls. 10-year Treasury yields are still climbing up, while the greenback has slowed down. The current situation should serve as a wake-up call for those EUR/USD traders who are planning to enter short positions. After all, do not forget that Federal Reserve Chairman Jerome Powell is set to speak on Thursday, and the day after that the February Nonfarm report will be released. Today's reports (including the ADP report) came out in the red zone, acting as a counterbalance to the general optimism about the prospects for a spasmodic recovery of the American economy.

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The US index of business activity in the service sector from ISM for the month of February came out at around 55.3 points, while most analysts expected to see it much higher - at 58.7. The indicator slowed down for the first time after three consecutive months of growth. Similarly, the ADP report was disappointing. According to the analysts, only 117,000 jobs were created in the US private sector in February. This result turned out to be almost two times lower than the predicted level - analysts expected to see this figure at the 210,000 mark.

In other words, a very alarming signal sounded in the form of a weak report from the ADP agency, which is a kind of "foreboding" on the eve of Nonfarms. If the official figures follow the trajectory of this release, the dollar will be under significant pressure again. To date, the consensus forecast on the official report suggests that the labor market will demonstrate weak, albeit growth in February. According to analysts, 130,000 jobs in the non-agricultural sector were created in the United States in February (this figure came out at the level of 44,000 in January, at around 227,000 decrease in December). But the unemployment rate should rise again - up to 6.5%. Thus, given the latest ADP report, there is still some intrigue regarding Friday's data. In my opinion, dollar bulls may not expect the upcoming figures to surpass the forecasted values.

In a separate line, you should pay attention to the inflationary component of Nonfarm - an indicator of the average hourly wages. A month ago, this indicator came out at 0.2% in monthly terms. This is also a rather weak result, and for the bulls of the pair, it is necessary for the Friday release to declare the resumption of positive dynamics. The inflationary component of Nonfarm is now important for EUR/USD traders, even outside the context of growth or decline in the number of employees. However, analysts are not optimistic here either - according to their forecasts, February salaries will remain at the January level.

As you can see, preliminary forecasts regarding Friday's Nonfarm do not promise support for the dollar. If the real figures do not reach the forecasted ones, EUR/USD bulls will have a reason to move up. However, such an occasion may appear earlier - following the results of Powell's speech. The Wall Street Journal is organizing a summit on Thursday, during which Powell will assess the current situation in the country's economy and comment on the latest trends. It is likely that he will also touch upon the growth of Treasury yields.

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Earlier, Fed officials (including Powell) turned a blind eye to the increasing dynamics, but in recent days, yields, in particular, 10-year bonds, have updated annual highs. If Powell at least hints that the central bank may consider the option of targeting yields, then the dollar will collapse on all fronts, even against the euro. And although this option is currently unlikely, it still cannot be ruled out. After all, Powell may not announce such a move, but only "allow such a probability" – and this will be enough for the appropriate reaction of traders. By the way, the yield of European bonds is also growing, but here the ECB's reaction was not long in coming: several members of the European Central Bank reacted with very "aggressive" comments. Some of them (in particular, Fabio Panetta) said that the ECB should, if necessary, expand the purchase of bonds to curb yields.

Therefore, the bearish sentiment on the EUR/USD pair is unreliable. Against the background of weak macroeconomic reports and dovish comments from Fed members, dollar bulls will not be able to develop a large-scale rally – especially in the context of more or less wide time ranges. Therefore, moving down, the price can still be used as a reason for opening long positions. Yesterday's failed assault on the 19th figure once again confirmed the reliability of the support level of 1.2000 – to overcome it (and settle under it), the pair's bears need a fairly strong fundamental reason. And if Powell and the Nonfarm report are not on the side of the US currency, then the EUR/USD pair will be able to resume its growth to the nearest resistance levels. The first target for growth is the price of 1.2120 – this is the Tenkan-sen line on the daily chart. The main target is still the psychologically important mark of 1.2200, which corresponds to the upper line of the Bollinger Bands indicator on the same timeframe.

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Analytics and trading signals for beginners. How to trade GBP/USD on March 4? Analysis of Wednesday. Getting ready for Thursday

Trading 03 Mar 2021 Commentaire »

Hourly chart of the GBP/USD pair

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The GBP/USD pair has been trading between the 1.3885 and 1.4000 levels for most of the week. The price has not been able to surpass the 1.4000 level twice now, and is not yet able to continue the downward trend. In addition, we managed to form two trend lines at once, which, by and large, contradict each other. A longer trendline - a downward trend - indicates that the downward trend will continue, while a shorter one - an upward trend - indicates that a short-term upward trend will form. Thus, in fact, whichever trend line traders manage to overcome in the near future, then the movement will continue in that direction. The price can determine the direction of movement on Thursday, and novice traders can only use one trend line. The pair traded mostly sideways during the day. Traders consider this movement as a "flat". The MACD indicator formed several sell signals at once during the day, but the first of them, which appeared at night, was much higher than the zero level, and each subsequent one was a result of the indicator's discharge. Thus, none of these signals should have been processed. As we have already said, novice traders are advised to work out the strongest signals.

The UK PMI for the services sector was published on Wednesday. Unfortunately for the British pound, after a very optimistic month of January, the value of the indicator decreased in February. Not much, just by 0.2 points, but still it decreased and reached 49.5. Thus, the British currency did not receive support in the morning, and the service sector continues to shrink. Furthermore, Rishi Sunak, UK Treasury Secretary gave a speech, who presented the budget plan for 2021 and assured that business and unemployed Britons will continue to receive financial assistance from the state. Thus, the markets calmed down a bit, but the pound did not receive much support either. Demand for the UK currency did not grow after the disastrous reports of ADP and ISM in America. The first of them witnessed an increase of only 107,000 new workers in the private sector, and the second - indicated a decrease in business activity in the service sector by 3.4 points to 55.3. However, traders ignored all of the day's macroeconomic reports.

There are no major publications scheduled in the UK and the US on Thursday, only minor ones. Novice traders can pay attention to the PMI in the construction sector in Britain and the number of applications for unemployment benefits in the US, but there is practically no chance that the pound/dollar pair will work out these data. Federal Reserve Chairman Jerome Powell's speech in the evening can rattle the pair. However, novice traders can already leave the market before this speech in order to avoid risk.

Possible scenarios on March 4:

1) Long positions are currently relevant, since there is an upward trend line. However, buyers need to wait for a clear buy signal from the MACD indicator, which is still discharging more in the flat. You should not enter the market without such a signal. Targets - 40-50 points from the entry point.

2) Short positions are also relevant now, since the downward trend line is also present. However, the pair was flat today, therefore, firstly, it needs to be completed before opening any positions. Furthermore, you can trade bearish using the MACD signal to sell. You will need to look at the pair's behavior around the upward trend line. In case of a rebound, any shorts will be closed. In case it overcomes it - maintain short positions.

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

*Poland Central Bank Holds Rate Unchanged At 0.10% As Expected

Trading 03 Mar 2021 Commentaire »

Poland Central Bank Holds Rate Unchanged At 0.10% As Expected


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U.S. Service Sector Growth Unexpectedly Slows In February

Trading 03 Mar 2021 Commentaire »

After reporting U.S. service sector activity at a nearly two-year high in the previous month, the Institute for Supply Management released a report on Wednesday showing the pace of growth in the sector slowed in the month of February.

The ISM said its services PMI dropped to 55.3 in February from 58.7 in January, although a reading above 50 still indicates growth in the sector. Economists had expected the index to come in unchanged.

The pullback by the services PMI came after the index reached its highest level since hitting 58.8 in February of 2019.

The decrease by the headline index was partly due to a slowdown in the pace of growth in new orders, as the new orders index tumbled to 51.9 in February from 61.8 in January.

The business activity index also slid to 55.5 in February from 59.9 in January, while the employment index fell to 52.7 from 55.2.

On the other hand, the report said the prices index spiked to 71.8 in February from 64.2 in January, indicating a significant acceleration in the pace of price growth.

Despite the slowdown in service sector growth in February, Oren Klachkin, Lead U.S. Economist at Oxford Economics, said the sector "is locked and loaded for a summer surge."

"Encouraging Covid statistics, accelerating vaccine distribution, and the Biden administration's push to make vaccines available to every adult American by the end of May offer hope the health crisis' end is nearing," Klachkin said.

"Looking ahead, better health conditions will allow deeply disrupted services to reopen and economic activity to fully normalize," he added. "The stage is set for a more robust recovery, with the American Rescue Plan set to deliver a fiscal impulse that lifts GDP growth to its highest in nearly 40 years."

The ISM released a separate report on Monday showing U.S. manufacturing activity grew at an accelerated rate in the month of February.

The manufacturing PMI rose to 60.8 in February from 58.7 in January. Economists had expected the index to inch up to 58.8.


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UK Chancellor Sunak Extends Furlough Scheme Till September

Trading 03 Mar 2021 Commentaire »

UK Chancellor Sunak extended the furlough scheme till the end of September as he vowed to protect "the jobs and livelihoods of the British people".

"We will continue doing whatever it takes to support the British people and businesses through this moment of crisis," Sunak said in his budget speech Wednesday. The Coronavirus Job Retention Scheme, or the furlough scheme, began last year to save jobs during the crisis triggered by the coronavirus pandemic. Sunak also said the Self-Employment Income Support Scheme will?continue with a fourth and a fifth grant.

The chancellor extended the business rates holiday in England by an additional three months. Retail, hospitality and leisure properties are thus exempted from paying business rates for three months from April 1.

Sunak also extended the temporary 5 percent reduced rate of VAT until September 30, 2021, thus benefiting 150,000 businesses in the tourism and hospitality sectors that employ around 2.4 million persons.

Businesses will pay a 12.5 percent rate for a further six months, until March 31, 2022.

The chancellor launched a GBP 5 billion Restart Grant scheme to help the high street, and a new Recovery Loan Scheme to replace the existing government guaranteed schemes that close at the end of March.

Sunak announced an extra GBP 1.65 billion to maintain the momentum of the roll-out of coronavirus vaccination in England. The government will invest a further GBP 50 million to boost the UK's vaccine testing capability.

The chancellor increased the funding for the Plan for Jobs schemes by GBP 126 million to boost traineeships, and double the cash incentive for firms taking on apprentices. The national living wage was raised to GBP8.91 from April. The budget also launched a new mortgage guarantee scheme that will enable homebuyers to secure a mortgage up to GBP 600,000 with a 5 percent deposit. The temporary cut in Stamp Duty Land Tax was extended to September. Fuel duty was frozen for the 11th consecutive year. Duty rates for beer, cider, wine and spirits were also frozen. Sunak said the rate of Corporation Tax will increase to 25 percent, but the hike will not take effect until 2023. Only businesses with profits of GBP 250,000 or greater will be taxed at the full 25 percent rate.

The chancellor also said the UK will launch world's first sovereign green savings bond for retail investors to allow savers support the country's transition to net zero by 2050.


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Short-term technical analysis on EURUSD

Trading 03 Mar 2021 Commentaire »

EURUSD bounced from 1.1991 to 1.2112 but bulls were unable to hold price above 1.21. Price has almost retraced 50% of the decline from 1.2242. Short-term support remains at recent lows of 1.1991 and as long as price is above this level there are hopes for a bigger bounce towards 1.2150.

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Bulls need to break price above the 1.2112 level for a move towards the major Fibonacci resistance at 1.2150. Recapturing 1.2150 is key for the continuation of the bounce. Failure to defend 1.1990 will open the way for a move below 1.1950 maybe towards 1.17.

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

Ichimoku cloud analysis of Gold

Trading 03 Mar 2021 Commentaire »

Gold price remains in a bearish trend. All parts of the Ichimoku cloud indicator confirm that we are in a bearish trend as long as price is below $1,790. A break above $1,790 will signal the increased chances of a trend reversal.

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Price is clearly below the Kumo (cloud). Price is also below the tenkan-sen (Red line indicator) and the kijun-sen (yellow line indicator). Resistance by those two indicators is at $1,758 and at $1,788. The Chikou span (black line indicator) is below the candlestick pattern. The Ichimoku cloud indicator confirms that we are in bearish trend. For this to change bulls will need to at first break above the tenkan-sen resisance and stay above it. Until then we expect Gold price to move lower as the weekly chart has broken below the weekly Kumo.The lower weekly cloud boundary is at $1,759. A back test of this level is probable and should be expected.The material has been provided by InstaForex Company - www.instaforex.com

GBPUSD still in bullish trend

Trading 03 Mar 2021 Commentaire »

GBPUSD has reached as high as 1.4230 and is now pulling back towards 1.3950. Trend remains bullish as price continues making higher highs and higher lows. Despite the recent pull back of more than 200 pips, price is still above the major long-term support trend line.

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Green lines - bullish channel

GBPUSD continues inside the channel and despite the recent pull back we could see this as another buying opportunity close the channel support. Channel support is found at 1.3750 and as long as price is above this level, we consider that trend remains bullish. The RSI did not make a higher high, creating a bearish divergence. However this is just a warning and not a reversal signal. For a trend reversal signal, we should wait for an exit out of the bullish channel before confirming the change in trend. Until then all pull backs are considered buying opportunities.

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*U.S. Crude Oil Inventories Spike By 21.6 Million Barrels In Week Ended 2/26

Trading 03 Mar 2021 Commentaire »

U.S. Crude Oil Inventories Spike By 21.6 Million Barrels In Week Ended 2/26


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Short-term analysis in XRP/USD

Trading 03 Mar 2021 Commentaire »

XRP/USD is trading around $0.44. Price remains below the major long-term resistance area of $0.62-$0.75 where a double top formation was created. However in the nearer term, price has potential to push towards $0.51.

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Red rectangles -resistance areas

Green lines - size of upward move if short-term resistance is broken

XRP/USD has short-term resistance at $0.45-$0.4550. If this resistance level is broken I expect Ripple to rise at least towards $0.51. Inability to break above the short-term resistance might lead to a rejection and move lower towards $0.35. Short-term support is found at $0.4195-$0.42. Breaking below this level the chances for a move towards $0.38-40.35 will increase. As long as price is below $0.45 Ripple is vulnerable to more downside.

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