EUR/USD: trapped in a wide-range flat

Trading 24 mar 2020 Donner votre avis

The euro-dollar pair is still marking time, although it shows a fairly high level of volatility. Buyers of EUR/USD since Friday regularly storm the eighth figure, but each time at the end of the trading session, the bears return the pair to its previous positions. However, sellers have also lost full control of the situation – any attempts at a more or less large-scale decline are used by traders to open long positions. As a result, the pair is forced to fluctuate within the seventh figure, alternately testing the eighth price level, then the sixth.

However, based on the results of the last three trading days, we can conclude that a large-scale correction is overdue for the pair. By and large, there is every reason for a significant price surge, both technical and fundamental. But traders still hold on to the dollar-rather instinctively, after the huge hype around the US currency. In addition, the greenback holds its position due to the status of a defensive asset – investors do not yet see a worthy alternative, although, for example, gold is actively gaining momentum. But the dollar is still the most attractive asset among the instruments of the foreign exchange market, a safe-have in times of troubles.

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In other words, the Federal Reserve's unprecedented steps to provide liquidity, the Senate's inability to accept a package of economic incentives, the spread of the epidemic in the United States - all these factors only hinder the growth of the US currency, but (so far) are not able to fundamentally reverse the situation with the EUR/USD pair. The news from Europe does not help the bulls, although Brussels is also taking extraordinary steps. In particular, the European Union approved the suspension of budget rules for the first time in history. The Stability and Growth Pact, which limits the state budget deficit of the eurozone countries to three percent of GDP, was "ordered a longer life." Moreover, in Brussels they did not say for what period they suspended the operation of this fundamental document.

Responding to this decision of the EU Council, the euro sharply rose in cross-pairs, however, together with the dollar, it was possible to allow only another correctional surge. This suggests that the dynamics of the pair depends only on the behavior and well-being of the dollar, while European events (and, accordingly, the reaction of the single currency) are optional.

In which direction does the pendulum swing? In my opinion, in the short term, the pair will continue to fluctuate within the range of 1.0650 - 1.0890 (the lower line of the Bollinger Bands indicator and the local maximum, respectively). For example, today or tomorrow, the dollar may receive support from the Senate if the Democrats and Republicans agree on a two trillion dollar economic stimulus package. According to Reuters, the parties were able to find a common denominator, and most likely will vote for the bill in the near future. Democrats twice - on Sunday and Monday - blocked this document. In their opinion, it does not provide enough money to the state hospital, does not provide social assistance to the unemployed in the right amount, and suggests too large a fund to help large businesses.

When this bill failed a second time, the dollar gave slack, making it possible for the EUR/USD bulls to re-enter the eighth figure. But the greenback regained the lost ground as soon as rumors of a compromise appeared. It can be assumed that in case of a positive outcome of the vote, the US currency will receive additional support, and will again test the sixth figure. However, this fundamental factor will not help the EUR/USD bears to overcome and gain a foothold below the support level of 1.0650. Whereas sellers need to confidently overcome this price target for the development of the downward trend. A corresponding news impulse is needed for such a price spurt, which again creates a stir around the US currency.

That is why the sellers of the pair need to be careful around the middle of the sixth figure - on Friday and Monday the bears stormed this support twice, but in each case it was unsuccessful.

Macroeconomic reports, both in Europe and in the US, are also ambiguous. For example, the US manufacturing PMI index reached 49.2 points, although experts expected it to be much lower - at around 43.5. But the preliminary PMI in the service sector in the United States reached a record low (39.2), while analysts predicted a higher result (44 points).

A similar situation has developed in Europe: if the manufacturing PMI indices came out better than the forecast values (although below the key 50-point level), then it was just a catastrophic failure in the service sector. For example, the French indicator fell to 29 points. On the one hand, the dynamics of the above– mentioned indices were predictable-tourism has died all over the planet, and production has been languishing for the second month. On the other hand, a not so steep decline in production indicators provided little support for both the euro and the dollar.

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As a result, the pair again stopped almost in the middle of the intraday price range, that is, in the middle of the seventh figure. In my opinion, EUR/USD will be stuck within this wide-range flat in the medium term – the bears will be waiting for support of 1.0650 at the bottom, at the top- a local high of 1.0890 (or a little higher - the resistance level of 1.0940, the lower boundary of the Kumo cloud on D1). Both bears and bulls need a fairly powerful and unusual information occasion to overcome the limits of the specified range.

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

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