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Exchange Rates 12.09.2019 analysis

Amplitude of the last 5 days (high-low): 69p - 68p - 37p - 52p - 29p.

Average volatility over the past 5 days: 51p (average).

From the very beginning of the week, the bulls on the EUR/USD pair steadfastly held the positions won with great difficulty from the bears, but exactly one day before the announcement of the results of the ECB meeting, they surrendered and weakened their grip. This led to a fall in the euro against the US dollar. Thus, it can be stated with confidence that the downward trend resumed. From a technical point of view, this is a completely expected development of events, as traders had serious problems with overcoming the Ichimoku cloud, and also if you look at the higher timeframe, it is clearly seen that each of the pair's next peak is lower than the previous one. However, everything is also logical from a fundamental point of view. The fact is that no one expects any tightening from tomorrow's ECB meeting, which could cause additional demand for the euro. Moreover, no one even expects the European regulator to leave monetary policy unchanged. But the vast majority of market participants expect a reduction in the deposit rate in the amount of 0.1% to 0.2%, as well as the resumption of the bond redemption program under the QE program. Thus, Mario Draghi and the company can mitigate monetary policy in two directions at once. It is hardly worth saying once again that easing monetary policy is a bearish factor for a currency whose central bank implements this process.

The most interesting thing about tomorrow is not the results of the meeting, they are more or less clear to traders right now. The question is what ECB President Mario Draghi will say at the press conference. The fact is that there are less than two months and two central bank meetings remain until the end of his term. Analysts predicted in the summer that Draghi finally wants to "slam the door". Now this period finally come. The question is what will be the actions of Draghi at the next, his final, meeting of the ECB? Will he leave Christine Lagarde a legacy after himself in the form of not just low, but "ultra-low" rates? All this can be understood from the rhetoric of Mario Draghi tomorrow.

However, by and large, it is not so important what legacy Draghi will leave Christine Lagarde. It is important that the euro falls, again approaching its two-year lows, updated recently. We just have to mention the ghostly prospects of the euro as there were no serious fundamental factors of growth in the EU currency either. As we have already written many times, the only chance of the euro in the current conditions is to lower the Fed key rate, and the more the better. Euro bulls can only hope that James Bullard's proposal to cut the rate by 0.5% at once will be taken into account by Jerome Powell and to the applause of Trump, the Federal Reserve will announce a serious easing of US monetary policy. Only in this case the bears can calm down, which will give the euro a chance to form at least a short-term upward trend. However, according to many analysts, the United States and the European Union are on the verge of not only a trade, but also a currency war. The governments of the European Union and China realized in time that arguing with Trump makes no sense, and that trade wars are disadvantageous, primarily to China and the EU, as well as the trade deals offered by Trump. That is why the depreciation of the yuan and the euro against the dollar is an effective method of dealing with Trump duties. That is why it does not make any sense for the European Union to "fight" for the euro exchange rate.

The technical picture suggests a decrease in the euro/dollar currency pair. Already at the current bar, the pair may gain a foothold below the Ichimoku cloud, and the "dead cross" has already formed. In this case, we expect a fall to at least the support level of 1.0940, unless the ECB presents a surprise tomorrow .

Trading recommendations:

The EUR/USD pair completed the upward movement. Thus, it is now recommended to re-sell the currency pair with the target of 1.0940. Tomorrow, in anticipation of the announcement of the outcome of the ECB meeting and Draghi's speech, increased caution is advised with any transactions in the market. We advise not to return to purchases at the moment.

In addition to the technical picture, fundamental data and the time of their release should also be taken into account.

Explanation of the illustration:

Ichimoku indicator:

Tenkan-sen is the red line.

Kijun-sen is the blue line.

Senkou Span A - light brown dotted line.

Senkou Span B - light purple dashed line.

Chikou Span - green line.

Bollinger Bands Indicator:

3 yellow lines.

MACD indicator:

Red line and bar graph with white bars in the indicator window.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Paolo Greco,
Analytical expert
InstaForex Group © 2007-2019
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