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03.04.2020 08:01 AM
Hot forecast for EUR/USD on 04/03/2020 and trading recommendation

What is happening with the single European currency can only be called hysteria. It's not even panic or fear. Despite everything, the dollar continues to strengthen. Although from a macroeconomic point of view and the spread of the coronavirus epidemic, everything indicates that it should rapidly become cheaper. In a good way, you need to run away from it in a panic. Yesterday's data showed a record number of confirmed cases of coronavirus infection in the United States. An additional 30.1 thousand during the day. What can I say, if almost a quarter of all cases of coronavirus infection are not in the United States. Europe is still far, since there are more cases of infection in total only in Italy and Spain. And then there are France, Germany, Great Britain, and so on. But people are not looking at the continents, but at individual countries. So the market's behavior is counterintuitive. This is hysteria. After all, most of the financial capital in the world is controlled by US institutional investors, and it turns out that, seeing what is happening, both in the economy and in terms of the global pandemic, they continue to close all their positions in a panic and return money home to the United States. Well, we'll see. Apparently, from their point of view, everything is risky now. But given what is happening in the United States labor market, the picture looks simply absurd.

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However, at least in the first half of the day, the single European currency had reasons to decline. Although it was standing still at the time. The fact is that the rate of decline in producer prices has increased from -0.7% to -1.3%. Consequently, the potential for inflation growth is extremely low. Rather, disinflationary processes are at work, and inflation itself may continue to go down. This will force the European Central Bank to seriously think about the possibility of reducing the refinancing rate to negative values.

Manufacturer's prices (Europe):

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But what is happening in the US labor market is not intelligible at all. In just one week, as many as 6,648,000 people applied for unemployment benefits. And this despite the fact that for the previous week there were still 3,283 thousand of them, and then it seemed just a fantastic figure. It was an absolute record. Now it is beaten. Moreover, with such a margin that, it seems, there is nowhere else to go. At the same time, it was expected that there would be 3,680 thousand initial applications for benefits. But the forecast did not come true. The reality was much worse. In addition, repeated applications turned out to be 3,029 thousand, which is less than the forecast of 4,920 thousand. with a very large stretch, this can be regarded as a kind of hope that those who lost their jobs will find a new job in a relatively acceptable time. But this is only hope, and I want to believe in it so much. In any case, we are witnessing the largest increase in unemployment in the United States since the Great Depression. And in theory, this should have a very negative impact on the dollar. But this does not happen. Apparently, investors themselves can not believe what is happening, and have just set their sights on a full report from the US Department of Labor.

Number of initial applications for unemployment benefits (United States):

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But first you should pay attention to retail sales in Europe, whose growth rate should accelerate from 1.7% to 1.9%. At the same time, there is a possibility that the growth rate will be significantly better than forecasts, as indicated by recent data for Germany, where there was an incredibly strong growth in sales.

Retail sales (Europe):

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But it's clear that the US Department of Labor's data will be in the spotlight, which should either dispel fears or confirm the most terrible. So, it is expected that the unemployment rate should grow from 3.5% to 4.0%. The number of jobs outside agriculture can fall by 150 thousand. Even the average duration of a working week should be reduced from 34.4 hours to 34.0 hours. Well, the growth rate of average hourly wages may slow down from 3.0% to 2.9%. These numbers in themselves are terrifying, but most likely the results will turn out to be much worse. And then the fun begins. Indeed, even if after that the dollar does not begin to rapidly fall in price, it means that investors are in such a panic mood that no macroeconomic statistics concern them at all. Perhaps they rightly believe that if an economic catastrophe occurs in the United States, it will necessarily affect the rest of the world. Indeed, a sharp increase in unemployment and a drop in consumer demand in the United States will automatically lead to an increase in unemployment around the world. Elementary due to the fact that the American consumer market is the largest in the world. And many countries simply live off by exporting their goods to North America. So both dollar growth and its decline are possible, and it is better to work according to the situation, rather than counting on a specific scenario in advance.

The number of new jobs created outside agriculture (United States):

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From the point of view of technical analysis, we see a rapid downward movement, during which the quote managed to go down locally to the area of 1.0820, after which a stagnation of 1.0820/1.0866 was formed. In fact, the range serves as a variable platform where acceleration may again occur.

In terms of a general analysis of the trading chart, we see that since the beginning of the trading week, the dollar has strengthened despite everything, recovering by more than half relative to the inertia of the past week.

It can be assumed that the report of the US Department of Labor will exert local pressure on the dollar, during which quotes may return to the area of 1.0960-1.1030. In terms of the technical aspect, it is worth paying attention to the range formed during the Pacific and Asian sessions of 1.0820/1.0866, where it is possible to apply the trading method for the breakdown of borders.

Concretizing all of the above into trading signals:

- We consider long positions in case of price taking higher than 1.0870, with the prospect of a move to 1.0900-1.0960-1.1000 --- 1.1030.

- We consider short positions in case of price taking lower than 1.0820, with a move towards the level of 1.0775.

From the point of view of a comprehensive indicator analysis, we see that due to the ongoing progress, the indicators of technical tools on the hour and day periods changed interest to downward. At the same time, minute segments work on a variable oscillation.

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Dean Leo,
Analytical expert of InstaForex
© 2007-2024
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