EUR/USD: 1.05 or 1.10?

Trading 24 mar 2020 Donner votre avis

The euro-dollar pair is currently unable to determine the vector of its further movement. The price fluctuates in a wide-range flat after a 500-point decline last week: bears can not get a foothold in the sixth figure, while bulls are not able to keep the pair within the eighth price level. Despite significant intraday volatility, the pair is actually stuck in place waiting for a powerful news impulse. It is worth noting that the fundamental background is full of events, but all these events are contradictory for the dollar - on the one hand, the White House's intentions to stimulate the economy, on the other hand, the Federal Reserve's unprecedented lending measures against the background of the deteriorating epidemiological situation in the United States.

The general situation on the market is quite eloquently illustrated by the dollar index – starting the trading week at 103.47 points, it plunged during the day to a daily low of 102.53 points. But the downward trend did not continue, after which the index went up again, reacting to the current news flow.

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The information background looks quite colorful today. First, the number of people infected with coronavirus is growing in the United States – more than 35,000 of them. The United States led the ranking of countries by daily increase in morbidity: 7,021 cases per day (Spain and Italy followed by America). The number of infected exceeded a thousand in seven states of the country, but the most affected were New York (almost 17,000 cases, 114 deaths) and Washington (more than 2,000 cases, 95 deaths). New York has already been called the epicenter of coronavirus infection in the United States – if the number of new cases continues to increase at the same rate, in two or three weeks, medical workers will lack the necessary funds.

Against this background, the US Senate in a procedural vote on Sunday failed to pass a bill on a package of economic stimulus measures for 1 trillion 600 billion dollars, which was supposed to be used to fight the spread of Covid-19. The draft law did not get enough votes – according to the Democrats of the Upper House, this initiative should be partially revised. Most likely, this bill will be reviewed again today.

All these circumstances at the start of the trading week put pressure on the greenback. In addition, the US Federal Reserve, which last week announced a program of quantitative easing worth $700 billion, today canceled the specified threshold and made this program unlimited in amount. Jerome Powell also announced the opening of credit lines for corporations, states, and local governments. The Fed chief added that current purchases of US Treasury and mortgage-backed securities will be expanded "as much as necessary."

However, EUR/USD buyers could not take advantage of the situation. After the above statement of the Fed, the pair grew and tested the eighth figure. But traders immediately began to buy it at a bargain price, again investing in the US currency. As a result, the pair was stuck between the sixth and eighth figures, alternately testing the lower and upper limit of the price range. If we talk about longer-term prospects, the question is somewhat different – either the pair goes to the fifth figure, or it recovers to the middle of the medium-term downward trend – this is the price band of 1.0950-1.1035 (the lower and upper boundaries of the Kumo cloud on the daily chart).

The bears definitely feel uncomfortable below the seventh figure – they have already tested the sixth price level three times, but in vain. Similar discomfort is felt by buyers of EUR/USD above the 1.0800 mark – the pair begins to be in demand among sellers at such heights. This is why neither bulls nor bears have a clear advantage (if, of course, we are talking about a short-term time period).

The single currency also came under additional pressure today on the background of news from Germany. On Friday, Chancellor Angela Merkel was given a preventative pneumococcal vaccination, but it later emerged that her doctor had tested positive for the coronavirus. The chancellor was sent to quarantine, and buyers of EUR/USD received another reason for concern. But, according to preliminary data, the alarm was false – the first test for Cavid-19 was negative. Therefore, at the moment, the pair's traders focused only on the behavior of the US currency.

At the moment, it is difficult to say whether the bulls will be able to turn the situation around or whether EUR/USD will finally gain a foothold in the sixth figure. After the impulsive decline last week, bears are forced to reckon with the actions of the Federal Reserve (which, among other things, opened dollar swap lines with the leading central bank). On the other hand, if the US Senate re-considers the above-mentioned bill and approves the program to stimulate the economy, the dollar may again test the area of the sixth figure.

In other words, despite the clear downward trend in which the EUR/USD pair is currently trading, it is risky to open short positions – there is a certain risk of catching the price bottom, especially against the background of the latest decisions of the Fed. In addition, today it became known that the leaders of the EU countries agreed to suspend the budget rules, and Germany will support the "rescue program for Italy". All these factors are in favor of the euro.

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But on the other hand, the dollar is still regarded by the market as the most reliable defensive asset, so long positions are also in question. To confirm the downward trend, the bears need to gain a foothold below the lower line of the Bollinger Bands indicator on the daily chart (that is, below 1.0650). For bulls of the pair, the task is more complicated - to break the general situation, they need not only to gain a foothold in the eighth figure, but also to rise above the 1.0940 mark (the lower boundary of the Kumo cloud on D1).

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

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