Higher linear regression channel: direction – downward.
Lower linear regression channel: direction – downward.
Moving average (20; smoothed) – sideways.
On Wednesday, May 13, the EUR/USD currency pair will try to continue the upward movement after fixing above the moving average line. We still believe that the euro/dollar pair remains within the side channel and in the coming days will be aiming for its upper limit – the Murray level of “4/8”-1.0986. The volatility of the pair was quite high yesterday – as much as 100 points, although it was not provoked by macroeconomic statistics again. Although in principle, you can try to link the failed report on inflation in the US with the fall of the US currency. In any case, we do not yet have enough reason to assume that the markets have fully returned to their usual trading channel.
In recent articles, we have already paid attention to the conflict between Germany and the European Union, regarding the German court’s decision calling into question the legality of the ECB to conduct a program of buying bonds of Eurozone countries in order to help the economy, and the European court’s decision of 2018, which shows the legality of the ECB’s actions. In fact, this decision is not the Central Bank of Germany or the German Constitutional Court. Germany has its own power, which has been opposed to providing assistance to southern countries since 2008, when the idea of issuing bonds on behalf of all EU countries first arose. You can understand the Germans in principle. Germany is the wealthiest country in the EU, and its economy is considered the engine of the entire Eurozone. At the same time, German pedantry and thrift allow the economy to withstand the most persistent and effective crises. This was the case in 2008, and it still is. It was Germany that suffered the least from the “coronavirus” epidemic in the EU. The number of deaths from the epidemic is only 7,667. For comparison, in Italy – almost 31,000, in Spain – almost 27,000, in France – almost 27,000. Thus, the Germans believe that the southern countries do not know how to save money, spend money, and in the event of a crisis, ask for help from the European Union. But since the EU Board is not an independent organization that can provide assistance to any country with its own resources, but, in fact, the cooperation of all EU member states, it turns out that the countries that have suffered the most from the next crisis are asking for help from the countries that have suffered the least. That is Germany in particular. In 2008, they saved Ireland and Greece, and now they need to save Italy, Spain, and Portugal. This is exactly what does not suit the Germans, who blocked further purchases of assets by the German Central Bank until the ECB proves the legality of buying government bonds in a disproportionate amount. It is obvious that this court decision calls into question the entire monetary policy of the ECB and expresses Germany’s disagreement on the most important policy issues at this time. The European Commission has already threatened Berlin with penalties.
At this time, Angela Merkel intervened, clearly not without her participation, and the expression of disagreement with European policy was realized. The German Chancellor said that the dispute between Germany and the EU is easily resolved if Brussels demonstrates the need for a program to purchase government bonds. In fact, this position of the German Chancellor completely repeats the proposal of the court itself. Naturally, the opposite position is taken by the head of the European Commission, Ursula von der Leyen, who threatened Germany with legal proceedings on the fact of possible violations of European law by Berlin.
How can it all end? In the near future, Germany should respond to the position of the European Commission and correct the situation (if it wishes). The European Commission insists that the decision of the European Court of Justice in 2018 allows the ECB to conduct such programs to buy assets, which means that the ECB, in any case, should not explain anything to Germany. If Berlin refuses to comply with the rules of European law, then the procedure that precedes the judicial one is launched. Germany will again be given a chance, but within the framework of legal procedure, to comply with the ECB’s decisions. If Berlin refuses again, a trial will be launched, which, according to many experts, may drag on for many years. We can only guess how this trial will end. The most negative option for the European Union is Germany’s exit from it. We have already written that the same path can be taken by Italy, which believes that the EU should provide it with assistance, which is refused, in fact, by Germany. So far, these events do not have a strong impact on the euro currency. However, again in the long term, the euro may be under pressure if the prospect of losing two more EU member states increases.
Industrial production for March is scheduled to be published on the third trading day of the week in the EU. The forecasts are terrible and at the same time absolutely not surprising. Production is expected to decline by 12.4% year-on-year. Recall that production in the United States in March decreased by only 5.5%. Thus, we can slowly begin to compare the scale of losses of the American and European economies from the pandemic crisis. If it also will continue to develop, the euro could be under strong pressure from the part of market participants. Not only is the US currency itself often in demand, as the most stable and secure but also the EU economy can decline at a higher rate. Of course, in this situation, the investment will flow to America, not to the EU. And the dollar will again become more expensive in the long term. But if the EU will lose followed by the UK and even Germany or Italy…
In the States, Federal Reserve Chairman Jerome Powell is scheduled to speak today. The event is quite loud and important, but everything will depend on what topics the Chairman of the US Central Bank will address in his speech. Monetary policy is what interests traders. However, what new can the Fed offer now? The ed does not support negative rates. Thus, the maximum that Powell can declare is the launch of a new program to support the economy. Traders do not respond to such messages. Even later in the evening, ECB Vice-President Luis de Guindos will deliver a speech.
The average volatility of the euro/dollar currency pair as of May 13 is still 69 points. Thus, the indicator continues to decline, and its value is now characterized as “average”. Today, we expect quotes to move between the levels of 1.0783 and 1.0924. Turning the Heiken Ashi indicator down may signal a new round of downward movement within the side channel.
Nearest support levels:
S1 – 1.0803
S2 – 1.0742
S3 – 1.0681
Nearest resistance levels:
R1 – 1.0864
R2 – 1.0925
R3 – 1.0986
The EUR/USD pair managed to overcome the moving, so at the moment the upward trend is resumed, limited by the Murray level of “4/8”-1.0986. Thus, purchases of the pair with targets near the level of 1.0986 are relevant now again. It is recommended to consider selling the euro/dollar pair not before the price is re-anchored below the moving average line with the goals of 1.0783 and 1.0742. It should be remembered that now the euro/dollar pair, in fact, there is a sideways movement. There is no trend.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.