Average volatility over the past 5 days: 82p (average).
The EUR/USD pair continues a strong upward movement on Tuesday, May 19, and it worked out towards the end of the day at the resistance level of 1.0952. Today’s peak at the time of writing is 1.0976. Recall that in recent weeks we have repeatedly said that the price, in case of an unsuccessful attempt to overcome the lower boundary of the side channel 1.0750–1.0990, will tend to its upper boundary. Last week, traders were not able to overcome the 1.0750 level, and in articles with intraday trading signals, we repeatedly indicated a long-term upward trend line, which also supported buyers of the euro. And today, we can say that the pair worked out the upper boundary of the side channel. Of course, there was no exact trading of 1.0990, the pair may increase to it in the coming hours. Quotes can simply turn down near the upper border of the channel and start moving to the lower border at 1.0750. Therefore, the pair currently remains within the side channel, and the trend movement is absent. Consolidating the price above the area of the level of $1.10 can trigger the formation of a new upward trend.
The calendar of macroeconomic events for the eurozone was empty today. More precisely, several indexes from the ZEW Institute were published, which reflect the mood of investors, the business climate. The European index of economic sentiment significantly increased from -12.1 to 46. The index of sentiment in the business environment of Germany also increased from 32 to 51. Thus, we can assume that the worst for the European economy is already behind. Nevertheless, these are not indicators that could cause a strong reaction of market participants. Pound sterling and the euro have been growing for two days in a row, despite the fact that there were no macroeconomic reports in the UK, the EU or the US on Monday and today they were only in the UK. Of course, various events continue to occur in the world that could theoretically have a positive impact on both pairs. However, it is unlikely that news of successful testing of the coronavirus vaccine in America could cause a sharp increase in the euro and the pound. It would be more logical to expect the dollar’s growth, since it turns out that production of the vaccine for the population will begin most quickly in the US, respectively, it will most likely emerge from the epidemic and begin recovery, as well as secure themselves from future new “waves”. Therefore, news about vaccine testing is unlikely to be related to the dollar’s fall.
Furthermore, German Chancellor Angela Merkel and French President Emmanuel Macron agreed on a package of assistance to the European economy and the countries most affected by the pandemic worth 500 billion euros. It is reported that money will be borrowed in the financial markets. They will go to the EU treasury as a one-time aid to the most affected countries and will not be required to return. It remains unclear who will participate in the formation of this fund. Obviously, these will be France and Germany. But who else will join them? After all, it is unlikely that it will be Italy and Spain, for the sake of which this fund, in particular, is being created. It is also unlikely that only France and Germany will allocate these 500 billion euros. The German Chancellor said that the aid package previously agreed by the European Council is not enough, so the Recovery Fund will be a “German-French contribution to overcoming the crisis caused by the pandemic.” Merkel also said that the current crisis is the worst in the history of the European Union. However, it should be noted that so far this is nothing more than a proposal from Paris and Berlin. Earlier, the European Council, for example, could not agree on a assistance package of 2 trillion euros. Even earlier, Berlin and some other northern countries rejected the proposal for crown bonds. Thus, no fund has yet been created, and, for example, Austrian Chancellor Sebastian Kurtz opposes the proposal of Paris and Berlin, believes that this plan will meet resistance from other countries. The adoption of this plan requires the consent of all 27 member countries of the EU, and its discussion will be held in June. Thus, the prospect is not close, and it is not clear how this discussion will end. Based on this, we believe that Merkel and Macron are also not “to blame” for the euro’s growth. The reasons are not part of their plan to save the eurozone economy.
Average volatility over the past 5 days: 123p (high).
The GBP/USD pair also continued its upward movement and crossed the critical Kijun-sen line on May 19. Thus, the downward trend for the pair was temporarily canceled, and now traders can try to start forming an upward trend. In the first half of the article, we tried to figure out what caused the dollar to fall against the euro and the pound. However, no apparent reasons were found. In this part of the article, we will continue to figure this out.
On Sunday and Monday, Federal Reserve Chief Jerome Powell gave an interview twice. However, both times his comments were not of any unexpected nature. On Sunday, Powell noted that US unemployment could rise to 25%, and fall by 20% in GDP in the second quarter. On Monday, the Fed chairman said that the regulator will do everything in his power to save the US economy and prevent it from continuing to fall. Earlier, last week, Powell noted that the stimulus program would be almost limitless, but now there is no talk of lowering the key rate. And Donald Trump even earlier resumed a massive attack on the Fed, again calling for a lower key rate. All this news was unlikely to be a shock to market participants or caused at least some emotions, because the information has long been known. Thus, Powell is unlikely to be involved in what is happening in the first two days. His next speech will take place today, this time in Congress, but it is unlikely that his rhetoric and the rhetoric of Stephen Mnuchin will be very different.
Thus, it turns out that the euro currency most likely grew on the basis of purely technical reasons, or rather, on the rebound from the lower border of the side channel. As for the pound, a correction began after it after a rather long downward movement. Data on unemployment and wages were released in Britain today. The unemployment rate even managed to drop in March, but this is the March data that markets were not particularly interested in. The same applies to wages, the data on them concerned March. But the rate of applications for unemployment benefits, which reached 856,000, concerned April and turned out to be absolutely negative. It should only be noted that the normal value of this indicator is + – 25,000, and it immediately becomes clear how bad everything is. However, today the pound is steadily growing, which again contradicts the nature of macroeconomic information.
Recommendations for EUR/USD:
For short positions:
The EUR/USD pair continued the upward movement on the 4-hour timeframe for most of the day. However, 1.0750–1.0990 can turn around and begin to fall near the upper boundary of the side channel. Thus, we advise you to consider selling the pair with a view to the lower boundary of the channel – 1.0750.
For long positions:
Buy orders can be opened no earlier than breaking the 1.0990 level, the 1.1000 level and the resistance level of 1.1008. After overcoming these obstacles, we can expect an upward trend to form and then you can continue to trade for an increase.
Recommendations for GBP/USD:
For short positions:
The pound/dollar continues to adjust against the downward trend. Thus, traders are advised to resume selling the pair with targets of 1.2070 and 1.1987 in case of price taking below Kijun-sen.
For long positions:
You are advised to consider purchases of the GBP/USD pair while aiming for 1.2325, but in small lots, since there is no Golden Cross.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.