Average volatility over the past five days: 69p (average).
The EUR/USD pair continued a slurred upward movement on Wednesday, May 13. “Indistinct” – due to frequent corrections and pullbacks, which, in principle, is due to the side channel, inside which the euro/dollar continues to trade. We have repeatedly said that the pair is now in the channel, limited by the levels of 1.0750 and 1.1000. Thus, after an unsuccessful attempt to leave through the lower line of the channel, it is logical to move to its upper line. However, today the pair found an insurmountable barrier in the form of the Senkou Span B line, from which it rebounded, and a downward movement began at the US trading session. Today’s volatility does not exceed 60 points, which is a normal value for the pair.
A large number of macroeconomic statistics have not been published to date. Only a report on industrial production was released in the European Union, which showed a decrease of 12.9% in March in annual terms (worse than forecasts), and by 11.3% in monthly terms (better than forecasts). However, a decrease of 11% cannot be interpreted as positive in itself. Nevertheless, the pair’s growth was observed at the European trading session, which indicates the appreciation of the euro. Based on this, we once again conclude that market participants continue to ignore all macroeconomic data.
In the afternoon, Federal Reserve Chairman Jerome Powell also gave a rather important speech. Recall that earlier, US President Donald Trump called on the Fed to continue to reduce rates and bring them to negative values, as in some other countries. Thus, the markets were immediately worried about a possible new easing of US monetary policy. By the way, Powell spoke today and dispelled the concerns of traders and investors. The Fed chief said that the US economy could face a long period of weak growth, but promised that the regulator would make every effort and called for increasing budget expenditures to support the economy. He also said that economic recovery can be quite long and slow before it picks up speed. “Everything will depend on the results of the fight against the coronavirus,” Powell emphasized. He emphasized that the longer the risks of a pandemic persist, the more businesses go bankrupt, the longer households will have problems earning income. Also, Powell openly called on Congress to allocate more money for additional fiscal support to the economy. Recall that now the total assistance program is already more than three trillion dollars. The most important thing that all spectators of the video conference were waiting for – Powell noted that the Fed is not considering the possibility of using a negative interest rate. Thus, it can easily be assumed that in the near future, Trump, who needs to revive the US economy as quickly as possible, will once again take up the massive criticism of the Fed and personally Powell, who recently even began to praise when rates were still lowered to zero .
The US currency received the support of market participants after receiving information from Powell. However, will the dollar continue to strengthen? From a technical point of view, it is more preferable to continue the upward movement to the psychological level of $1.10. And we can talk about forming a downward trend only after confidently overcoming the 1.0750 level.
Meanwhile, the media continues to discuss possible solutions to the situation between Germany and the European Union. The current situation is very delicate, and any wrong or careless decision can lead to the fact that anti-European sentiments will continue to mature in Germany, which may result in the victory of left or right political forces in the coming elections. Approximately the same thing that can happen in Italy. Recall that the essence of the conflict lies in the fact that Germany does not want to pay for the assistance of France, Italy and Spain, since it adheres to a strict budget framework, which the above countries do not do. The European Commission has already threatened Germany with legal proceedings and fines, but at the same time, the stronger it puts pressure on the Bundestag, the more Berlin will want to leave the European Union. Moreover, the UK has already set an example, and the mood of its current government (faster, as you like, just to break all ties with Europe) raises doubts about the urgent need for membership in the EU. Thus, it is the European Commission that needs to worry and find ways to put pressure on Germany so that it does not flare up and initiates a new “divorce proceedings”. In fact, after all, any fine in Germany is a fine to its taxpayers, who will elect the next power in the country. Penalize a German court? It is absurd. Thus, we believe that in this situation, the ECB should really explain to Merkel and companies the necessity of just such a program to stimulate the economy and the importance of the participation of the Bundesbank in it. Yes, the ECB’s reputation will slightly drop, and other countries that will need to help the most affected and squandering countries may also follow the example of Germany and demand an explanation from the ECB. However, there is no other option.
Average volatility over the past five days: 125p (high).
The GBP/USD pair also jumped at the European session on May 13, although it is clear that at such an earlier time no important information could come from the US. And in any case, important information would trigger an upward movement of 100 points, and not by 40. But a similar decline in the pair’s quotes began at the US session, as the dollar strengthened. Quite important data on GDP and industrial production have been published today in the UK. According to the Office of National Statistics, in March Britain’s GDP fell by 5.8% m/m, by 2% q/q and by 1.6% y/y. Thus, the real values of all three indicators of GDP turned out to be much better than the expectations of traders. However, as in the case of European industrial production, it is difficult to call negative values of GDP “positive”. Industrial production in Great Britain also turned out to be weaker than traders expected, -4.2% in monthly terms in March and -8.2% in annual terms. Thus, to put it mildly, the pound’s growth this morning contradicts the published figures. Well, after Powell’s speech, traders gladly rushed to sell the British pound, which continued its movement to the lower border of the side channel, which is quite unclear.
Recommendations for EUR/USD:
For short positions:
The EUR/USD pair began a new round of correction against a new upward trend on the 4-hour timeframe. Thus, it is recommended to consider selling the euro while aiming for 1.0783 and 1.0745, not before prices are returned to the area below Kijun-sen.
For long positions:
It is recommended that you open new long positions with the goal of the Senkou Span B line, levels 1.0921 and 1.0954 in the event that a rebound from the Kijun-sen critical line occurs.
Recommendations for GBP/USD:
For short positions:
The pound/dollar pair resumed the downward movement. Therefore, traders are advised to sell the pair with the target support level of 1.2164. But sell positions still carry increased risk.
For long positions:
It is recommended that purchases of the GBP/USD pair be considered with a view to the volatility level of 1.2396 and the Senkou Span B line, but in small lots if the Kijun-sen line is again overcome.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.