Analysis of EUR/USD and GBP/USD for January 22. Donald Trump threatens the EU with a trade war

Trading 22 jan 2020 Commentaire »

EUR / USD

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On January 21, the EUR / USD pair lost about 15 basis points and made an unsuccessful attempt to break through the 38.2% Fibonacci level. Thus, the instrument remained within the framework of constructing the proposed wave Y as part of the downward trend section, which currently assumes a 3-waveform. If this assumption is correct, then the decline in quotes will continue with targets located around the 10th figure. The whole wave pattern does not look completely unambiguous and the movements of the instrument are mainly due to the construction of correction structures.

Fundamental component:

There was no news background for the instrument on Tuesday. However, this applies only to economic reports. As often happens, the President of the United States Donald Trump made a devastating speech, who stated that he was ready to introduce 20% duties on cars from the European Union, thus starting a trade war if the European Union did not remove all trade barriers for American companies, which, according to Trump, lead to unfair competition. This problem has matured for a long time. A possible US-EU trade war has been discussed throughout the past year, but Trump already had one trade war with China at that time, and attention to the European Union was weakened. Now, the American president decided to return to the European Union after signing the first stage of a future trade agreement with China. Donald Trump wants to sign a trade agreement with Europeans and, certainly on terms that favors America. It has not yet been announced when the US will impose duties on European cars and whether any negotiations are currently underway on this issue. One thing is for sure - the trade war with America for the European Union will be a crushing blow to the economy, which is already going through far from the best of times.

The news background on Wednesday will also be absent for the euro / dollar instrument. However, I would recommend to carefully monitor Trump's new speeches regarding a possible trade war with Europe.

General conclusions and recommendations:

The euro-dollar pair is supposedly continuing to build a downward set of waves. Thus, I would recommend continuing to sell the instrument with targets located near the levels of 1.1034 and 1.0982, which corresponds to 76.4% and 100.0% Fibonacci.

GBP / USD

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On January 21, the GBP / USD pair gained about 40 basis points and continues to remain inside the alleged wave of 3 or c, which takes on a rather complex and extended form. This wave, no matter whether it will be with or 3, should continue its construction at the 38.2% Fibonacci level, however, the complexity of the current layout allows for certain adjustments. Thus, I recommend selling the pound / dollar instrument after a successful attempt to break through the 38.2% Fibonacci level.

Fundamental component:

A news background for the GBP / USD instrument was present on Tuesday. Several reports came out in the UK, and, surprisingly, they turned out to be positive. The November unemployment rate was 3.8%, which was what the markets expected to see, the average wage rose by 3.2% and 3.4% (with and without bonuses), which is even slightly better than expected, and the number of unemployment claims turned out to be significantly lower than the forecast of 22.9K. Thus, the demand for the pound increased during the morning trading yesterday, but so far, there is no feeling that the construction of the downward trend section has been completed. Moreover, there are too many problems in the UK right now, and even more may come up after January 31, when the transition period officially begins, during which trade negotiations with the European Union are to be held.

General conclusions and recommendations:

The pound / dollar instrument continues to build a new downward trend. I recommend selling the instrument again with targets near the level of 1.2764, which corresponds to the Fibonacci level of 50.0%. On the other hand, a successful attempt to break through the 38.2% level will indicate the willingness of markets to continue selling British currency.

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Dollar Exhibits Mixed Trend Against Peers

Trading 22 jan 2020 Commentaire »

The U.S. dollar turned in a mixed performance on Tuesday, losing ground against some peers and scoring solid gains against some, amid news about the outbreak of the deadly coronavirus in China and a downward revision in global growth forecast by the International Monetary Fund.

The dollar index, which declined to a low of 97.39, later recovered to 97.60, down slightly from previous close.

Against the Euro, the dollar was at $1.1085, up from Monday's close of $1.1096.

Survey results from the ZEW - Leibniz Centre for European Economic Research showed that German economic confidence strengthened to the highest level since 2015.

According to the report, the economic sentiment index rose more-than-expected to 26.7 in January from 10.7 in December. This was the highest since July 2015, when the score was 29.7. Economists had forecast a reading of 15.0 for January.

Against pound sterling, the dollar recovered from the day's low $1.3082, but was still down 0.25% from previous close. The sterling's gain was on the back of a report showing a jump in UK employment rate.

Data from the Office for National Statistics showed that the employment rate rose by 0.6 percentage points annually to a record 76.3% in three months to November.

The unemployment rate held steady at 3.8%, in line with expectations.

The Japanese currency was trading at 109.84 yen a dollar around late afternoon, recovering from a low of 110.22.

The dollar was up against the loonie and Swiss franc, at 1.3072 and 0.9689, respectively. Against the Aussie, it gained nearly 0.4%, with the Aussie-Dollar pair at 1.3072.

The Yuan was down nearly 0.6% against the dollar, at 6.9049, coming off six-month highs recorded on Monday. The outbreak of the deadly coronavirus in China contributed to yuan's weakness.


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Treasuries Move Notably Higher Amid Concerns About Coronavirus Outbreak

Trading 22 jan 2020 Commentaire »

Treasuries showed a significant move to the upside during the trading day on Tuesday as traders returned to their desks following the holiday on Monday.

Bond prices moved notably higher in morning trading and remained firmly positive throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 6.7 basis points to 1.769 percent.

With the drop on the day, the ten-year yield more than offset the increase seen over the two previous sessions, falling to its lowest closing level in over a month.

Treasuries benefited from their appeal as a safe haven amid concerns about the economic impact of a deadly coronavirus outbreak in China.

Chinese officials revealed the coronavirus outbreak has resulted in six deaths among nearly 300 confirmed cases, with the virus confirmed to be transmissible among humans.

Late in the trading day, the Centers for Disease Control and Prevention confirmed the first travel-related case of the coronavirus in the United States.

The CDC said the first case of coronavirus infection in the U.S. was diagnosed in the state of Washington in a patient who recently returned from Wuhan, China.

The strength among treasuries also came after the International Monetary Fund downwardly revised its forecast for global economic outlook due to bigger than expected slowdowns in emerging markets like India.

The IMF said it now expects 3.3 percent global growth in 2020 compared to its previous estimate for 3.4 percent growth. The organization also lowered its 2021 growth forecast to 3.4 percent from 3.6 percent.

News regarding the coronavirus outbreak could continue to attract attention on Wednesday, while traders are also likely to keep an eye on a report on existing home sales.


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Crude Oil Futures Settle Lower

Trading 22 jan 2020 Commentaire »

Crude oil prices edged lower on Tuesday as a report from the Energy Information Administration (EIA) forecasting a sharp climb in oil production in the U.S. outweighed concerns about supply disruptions in Libya.

Traders were also weighing the possible impact of the coronavirus outbreak in China on energy demand.

West Texas Intermediate Crude oil futures for March, the new front-month contract, edged down $0.20, or about 0.3%, to $58.38 a barrel.

West Texas Intermediate Crude oil futures for February expired at $58.34 a barrel, down $0.20, or 0.3% from previous close.

On Friday, WTI crude oil futures for February ended at $58.54 a barrel, gaining 2 cents for the session.

According to a report from the EIA, crude oil production from seven major U.S. shale plays may climb by 22,000 barrels a day in February to 9.2 million barrels a day. Oil output from the Permian Basin, which covers parts of western Texas and southeastern New Mexico, is expected to see the biggest increase, up 45,000 barrels a day in February from January, the report said.

The International Energy Agency said in its report last Thursday that it expects supply from OPEC will exceed demand for its crude, despite compliance with output cuts.

OPEC too has said supply from non-OPEC nations too far exceeds demand for crude.

According to a report released by Baker Hughes on Friday, the number of active U.S. oil rigs increased by 14 to 673 last week, had declined in the previous three weeks.


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Technical analysis recommendations for USD/JPY and its crosses

Trading 22 jan 2020 Commentaire »

USD / JPY

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The yen began in 2020 with the realization of what did not work out last year. So far, the pair closed the week in the bullish zone of the relative weekly cloud. Now, the main task of the players is fixing in this zone to increase in the near future. After that, monthly resistance will follow 110.70 - 110.83 - 111.40. However, breaking through the monthly boundaries is a more difficult task, since this will eliminate the monthly dead cross and mark the exit to the bullish zone of the relative Ichimoku cloud at the most upper time. In this situation, support is located at 109.50 (weekly cloud + monthly medium-term trend + daily short-term trend) - 109 (weekly Tenkan and the lower border of the cloud + daily Kijun and the upper border of the cloud) - Fixing below 108.08-30 can move players away from their goals for a long time.

EUR / JPY

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At the beginning of the year, the pair attempted a new test of important resistance, but the first target of the daily target for breakdown of the cloud (122.55), now strengthened by the lower border of the weekly cloud (122.71), withstood the defense again. As a result, we observe the next development of a downward correction. The nearest support is the daytime cross of Ichimoku, first Tenkan (121.96), then Kijun (121.48), as well as the most protected area 121.24 (weekly Tenkan + daytime cloud + final line of the daytime cross of Ichimoku). At the same time, securing below can significantly affect the current balance of power, opening up new prospects for players to decline.

GBP / JPY

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The pound / yen is trying to gain a foothold and stay in the bullish zone relative to the weekly cloud, using the cloud as support. Now, the main attention of the players to increase is aimed at breaking through the weekly short-term trend (143.65) and eliminating the dead crosses of Ichimoku at the daily (144.38 - 145.21) and monthly (145.07) time intervals. Moreover, breaking through these resistance forms new horizons and opportunities before the players to increase. The nearest support, in turn, can now be identified at 141.54 (monthly medium-term trend + daily cloud) and 140.34 - 139.12 (weekly levels + lower border of the daily cloud). Fixing below will change the existing balance and can lead to an active recovery of bearish sentiment.

Ichimoku Kinko Hyo (9.26.52), Pivot Points (classic), Moving Average (120)

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Gold Futures Settle Modestly Lower

Trading 22 jan 2020 Commentaire »

Gold prices edged lower on Tuesday, giving up early gains, as traders weighed the impact of the coronavirus outbreak in China on the demand for the yellow metal. A downward revision on global growth forecast by the International Monetary Fund weighed as well on the commodity.

Easing concerns about tensions in the Middle East too contributed to gold's decline.

Gold futures for February ended down $2.40, or about 0.2%, at $1,557.90 an ounce.

Gold futures for February ended up $9.80, or about 0.6%, at $1,560.30 an ounce on Friday. There was no settlement for gold futures contract on Monday due to holiday for Martin Luther King Jr Day.

Silver futures for March ended down $0.265 at $17.808 an ounce, while Copper futures for March settled lower by $0.0520 at $2.7935 per pound.

On Monday, the International Monetary Fund cut the global growth forecasts for this year and next, mainly due to the weaker-than-expected expansion in India.

Global growth for this year is projected at 3.3%, which is 0.1 percentage point less than the forecast made in October, the international lender said in the latest update to its World Economic Outlook report.

The growth rate is projected to rise to 3.4% next year, which is 0.2 percentage points less than the October forecast. The growth estimate for 2019 was lowered to 2.9% from 3%.

The World Economic Forum in Davos was in focus. Traders were also looking ahead to the European Central Bank's monetary policy meeting.


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EUR/USD. January 21. Results of the day. Most Americans favor Trump’s removal from office

Trading 22 jan 2020 Commentaire »

4-hour timeframe

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Amplitude of the last 5 days (high-low): 41p - 44p - 45p - 57p - 25p.

Average volatility over the past 5 days: 43p (average).

The second trading day of the week ends for the EUR/USD pair with a rapid rise and the next no less rapid fall following it. At least that's how it looks in the graph, but in fact the pair went as much as 25 points up and now down. Thus, the current total volatility of the day is 32 points. Needless to say, this is the lowest value of volatility, which means that, in fact, no trading was conducted today, and the emptiness of the calendar of macroeconomic events can be stated without even looking at the calendar itself. The main thing is that the euro/dollar pair has made a correction and can now resume the downward movement, which, as we are tired of repeating, has all the necessary fundamental and macroeconomic reasons. The bulls remain extremely weak, and now only the bears, which regularly increase their shorts, and from time to time take profits, are trades, which leads to corrections. Thus, now we expect the resumption of the downward trend.

As we have already said, there were few macroeconomic publications today. There were no important ones at all. Information was received from the ZEW Institute that the index of moods in the business environment of Germany rose to 26.7, although the forecasts were significantly lower (15.0), the index for assessing current economic conditions in Germany was -9.5 (with the forecast - 13.5), and the index of economic sentiment in the eurozone was 25.6 with a forecast of 5.5. Thus, it turns out that the current economic conditions are assessed as negative, but investor sentiment is growing, which perhaps means that the business climate is starting to improve in the EU countries. Although it is too early to draw such conclusions, it is better to look at the indices of business activity and draw conclusions on them.

Meanwhile, the European Central Bank conducted a study according to which the demand for loans from an EU enterprise decreased in the fourth quarter of 2019 for the first time since 2013. Interest rates in the European Union, of course, remain ultra-low. Banks continue to expect that in 2020 the demand for bank loans will remain stable, we also believe that one decrease over six full years is not an indicator of decline. However, there is a bad call in itself. If in 2020 the demand for loans begins to fall at such low rates, then the EU economy may begin to suffer even more. And the central bank will have to further lower the key refinancing rate. But the demand for housing loans, as well as for consumer loans, continues to increase, which is good for the EU economy. But since any economy is repelled from the production of goods and services in the first place, corporate loans are, of course, more important.

Meanwhile, Christine Lagarde, the head of the ECB, according to many experts, is preparing to conduct the most ambitious revision of the central bank's strategy since 2003. This process can last about a year, and many landmarks will be revised in accordance with new realities and changes in the world in recent years and even decades. Most experts are skeptical of the revision of the strategy, as officials have not been able to accelerate inflation over the past ten years, despite the fact that the ECB does not abandon the quantitative stimulus program and uses a policy of ultra-low rates. Despite the fact that macroeconomic indicators of the eurozone remain rather weak, and business activity indexes in the manufacturing sector, as well as industrial production itself, continue to decline and lose growth, experts do not expect a revision of monetary policy parameters at the next ECB meeting, which will take place this Thursday . It is expected that the main topic during the two-day meeting of the ECB will be inflation, the reasons for its low value, the reasons for the failure to stimulate economic growth through all the same inflation.

At the same time, a poll was conducted in the United States regarding Donald Trump and his impeachment. About 1,200 Americans over the age of 18 were interviewed over the phone. The error of the study is not more than 3-4%. The main questions asked by the Americans were:

1) Do they support the impeachment of Trump? 51% were in favor, 45% were against.

2) Should the Senate sitting include the testimonies of new witnesses? 69% were in favor.

3) 58% of Americans believe the evidence, which indicates that Trump really took advantage of his official position to put pressure on Ukraine.

4) 57% believe that Trump impeded Congress.

These are the results that, despite Trump's statements at the international economic forum, which takes place at the same time in Davos, about "America's prosperity as never before," suggests otherwise. As before, a fairly large number of Americans do not support Trump's policies and do not want him to be re-elected for a second term. It remains to wait for the results of the Senate meeting.

The technical picture of the euro/dollar pair implies the resumption of the downward movement. At the moment, the correction has reached the pivot level of 1.1116 and this may end safely.

Trading recommendations:

EUR/USD may resume a downward movement. Thus, it is recommended that you either hold open shorts with targets 1.1060 and 1.1052, or open new ones with new signals (MACD turn down or a rebound from the Kijun-sen line). It will be possible to consider purchases of the euro/dollar pair no earlier than the traders of the Senkou Span B line overcome with the first goal the resistance level of 1.1203.

Explanation of the illustration:

Ichimoku indicator:

Tenkan-sen is the red line.

Kijun-sen is the blue line.

Senkou Span A - light brown dotted line.

Senkou Span B - light purple dashed line.

Chikou Span - green line.

Bollinger Bands Indicator:

3 yellow lines.

MACD indicator:

Red line and bar graph with white bars in the indicators window.

Support / Resistance Classic Levels:

Red and gray dashed lines with price symbols.

Pivot Level:

Yellow solid line.

Volatility Support / Resistance Levels:

Gray dotted lines without price designations.

Possible price movements:

Red and green arrows.

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GBP/USD. British labor market has pleased, but do not rush with purchases

Trading 22 jan 2020 Commentaire »

Before traders of the GBP/USD pair had time to get used to the idea that the Bank of England would soon resort to a preventive rate cut, the British labor market was surprised by an unexpected increase. The British economy has recently regularly surprised investors, though, as a rule, in a negative context. The country's GDP is declining, inflation has been growing at the slowest pace since 2016, retail sales have completely collapsed into the negative region, despite the pre-holiday December period. With each report of this kind, the probability of a decrease in the interest rate naturally increased, all the more so as the dovish sentiment was fueled by the relevant comments of the representatives of the English regulator. Today's release on the growth of the British labor market could complement the general fundamental picture for the GBP/USD pair - the puzzle finally developed if the numbers came out in the red zone.

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However, British labor market data supported the pound. Despite a significant increase in applications for unemployment benefits, the pair adjusted almost to the boundaries of the 31st figure. Traders drew attention to the positive aspects of the release: firstly, the unemployment rate remained at a record low value of 3.8%, and secondly, the level of salaries (including premiums) remained at 3.2% in annual terms, although experts predicted a decline to a three percent level. As for the number of applications for unemployment benefits, the situation here is as follows. According to forecasts of many economists, this figure was supposed to exceed multi-year highs in December. According to some estimates, it could jump to 40 thousand, while others said it could reach up to 55 thousand. But in reality, this indicator came out at the level of the previous month, that is, at around 14 thousand. In other words, the result itself is not positive, however, given previous expectations, it fully satisfied the bullish appetite. All this made it possible for the pair to demonstrate a small correctional growth.

By and large, GBP/USD buyers became active only for one reason - market participants doubted that members of the BoE would lower their interest rates at the January meeting, which will be held next Thursday. Three members (out of nine) of the Committee are guaranteed to vote for a cut in the rate - from among those who have publicly stated the need for easing monetary policy (Vlieghe, Saunders and the recently joined Tenreyro). But most of their colleagues can still give the British economy another chance to independently get out of this situation. At least this logic guides the buyers of the GBP/USD pair. Last week, the likelihood of monetary easing on January 30 was almost 80%. At the moment, the chances are down to 65%.

And yet, in my opinion, the position of the British currency looks precarious. Traders of the pair were too emotional about the release of data on the labor market, as it was the only one of many releases that supported the pound. Nevertheless, the rest of the statistical reports cannot be saved - the members of the English regulator will either have to "close their eyes" to them or react accordingly. And even if members of the Bank of England do not dare to lower their rates next Thursday, they can take an extremely soft position - right up to the announcement of easing monetary policy at one of the next meetings. Therefore, the euphoria of GBP/USD bulls is unlikely to be long.

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Also, remember that the pound remains vulnerable due to the Brexit factor. Let me remind you that recently the pair plunged into the region of the 29th figure not only because of a series of disappointing statistics. The British finance minister, Sajid Javid, also had an influence on the Briton. He also said that after Brexit "there will be no trade agreements with the EU." According to the minister, large companies "had three years to prepare for a change in trade relations with the European Union." Such harsh statements worried market participants, after which the pound lost its foothold and fell into the 29th figure.

It is worth noting that during the transition period, officials and (especially) politicians (both British and European) will voice a variety of speculative statements, as the negotiations between Brussels and London promise to be difficult. And each such speech will exert strong pressure on the British currency, slowing the upward trend of GBP/USD or strengthening the downward one.

Thus, the pair's traders got a reason for corrective growth today, however, it is impossible to speak about long-term upward movement. After the first emotions from today's release come to naught, the price will return to the bottom of the 30th figure with a possible test of 29 price levels. The negative macroeconomic reports that were published earlier this year will continue to crush the pair - until January 30, when the BoE does not reach a verdict.

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EUR/USD: euro is trying to find the bottom

Trading 22 jan 2020 Commentaire »

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Although central banks claim that they cannot cope with Donald Trump's protectionist policies alone and call for national fiscal stimulus, the IMF believes that their aggressive monetary expansion will make a significant contribution to the first acceleration of global economic growth in three years. If it were not for the Federal Reserve, which lowered the interest rate three times in 2019, not the ECB, which revived the program of quantitative easing, nor the remaining 47 central banks, which reduced borrowing costs a total of 67 times last year, the global GDP would not have been calculated at 0.5%. Thus, the indicator is likely to expand in 2020 from 2.9% to 3.3%.

According to representatives of the IMF, a truce in the trade war of Washington and Beijing will also contribute to the restoration of the global economy. If the latter continued, then global GDP would not have been calculated at 0.8%. And so the loss will be only 0.5%, since the lion's share of trade tariffs continues to operate. Experts of a reputable organization believe that the global economy has groped the low and, thanks to the positive from the manufacturing sector and business investment, will gradually go uphill.

The IMF expects that in 2020 the growth rate of US and Chinese GDP will slow down (from 2.3% to 2% and from 6.1% to 6%, respectively), while international trade, on the contrary, will accelerate (from 1% to 2, 9%).

Meanwhile, the uncertainty in the global economy remains, because the trade truce of the United States and China is not the same as the trading world.

However, the first step has been taken, a precedent has been set, and other countries can follow their example.

France has decided to postpone the introduction of a digital tax. In response, the United States promised not to increase duties on French imports until the end of 2020. This news made it possible for the EUR/USD pair to suspend a three-day decline, although the situation in US-EU trade relations remains tense. According to Bundesbank estimates, an increase in US tariffs on deliveries of cars from Europe to 25% will deduct 0.25% from GDP in the eurozone.

Moderate optimism from the IMF, as well as a truce between Washington and Paris, give the single European currency a chance to find the ground under its feet.

EUR/USD rebounded off from a 3.5-week low of 1.1075 and returned to the 1.1100 area.

Fans of the euro are counting on both improving assessments of the current state of the eurozone economy from the ECB, and positive from German and European business activity. A pleasant surprise to the bulls on EUR/USD can be presented by Trump at the economic forum in Davos. Two years ago, the US leader had already declared there the dangers of a strong dollar. Why shouldn't he do the same now? This would allow the bulls to storm the resistance at 1.1110 and go on a counterattack.

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USDCAD continues sideways

Trading 22 jan 2020 Commentaire »

USDCAD has made no real progress since our last analysis was posted. Price continues to move sideways in a bullish flag pattern. If price breaks above 1.31-1.3085 we should expect Gold price to reach $1,575 or higher.

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Green lines - bullish flag

Red lines - expected targets

USDCAD is moving sideways below the 38% Fibonacci retracement. If resistance at 1.31 fails to hold I expect 61.8% Fibonacci retracement. USDCAD is forming higher lows and if we see a break above 1.3105 then we will be more confident of reaching 1.3180. Support remains at 1.3030. Soon I believe price will exit the consolidation and start a new move.

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