26.11.202023:18 Forex Analysis & Reviews: EUR/USD. ECB protocol, corrective decline and northern perspectives

The Euro-dollar pair today updated the two-week high (1.1941), but retreated from the positions won in the afternoon. This is all due to the minutes of the European Central Bank's last meeting which turned out to be quite gloomy and pessimistic. Mainly, the published document did not tell anything new but once again reminded traders of existing problems. Yesterday, there was a similar situation with the Fed Protocol where no sensations were announced, but the reaction of dollar bulls was negative.

Moving forward, we can say that the current price decline can be used as a reason to open longs. The pair needed a downward corrective pullback after two days of fairly strong growth. On Monday, the price was at the base of the 18th figure while this morning it reached 1.1941. The pair grew almost recoilless for two days, so the correction was literally asking for it. Traders found an informational reason for this, focusing on the rhetoric of the minutes of the October ECB meeting.

Exchange Rates 26.11.2020 analysis

This Protocol reflects negative forecasts. So, the key parameters of the economy will recover much slower and longer compared to earlier (September) forecasts according to the members of the European Central Bank. In particular, the overall inflation rate will remain in negative territory until at least the end of the year, while employment will continue to decline due to the second wave of the pandemic. It is worth noting here that we are talking about the meeting that happened last October 29, while the most stringent quarantine restrictions in most European countries were introduced beginning of November. On the one hand, the ECB's forecasts were justified because of lockdowns, resulting in many employees (especially in the service sector) being left without work. On the other hand, the European quarantine gradually began to bear fruit as the rate of spread of the disease slowed down. Therefore, in December, members of the European Central Bank will assess the epidemiological situation that will develop at the time of the meeting.

The other theses that are present in the ECB Protocol have already been repeatedly voiced by Christine Lagarde and other members of the regulator. Therefore, the southern correction of EUR / USD was short-term. Moreover, the current situation has shown that the pair's bears are currently not capable of a downward march: the price literally dived into the area of the 18th figure for an hour, where it attracted the attention of buyers. The weakness of the US currency as well as low liquidity due to the celebration of thanksgiving Day in the US made themselves felt.

All this suggests that purchases of EUR / USD are still relevant especially in the downward corrective price declines. There are several arguments in favor of the upward scenario. First, the Fed minutes published yesterday, reminded traders that the Fed is ready to "turn on the printing press", expanding quantitative easing programs. Secondly, the dollar continues to be under pressure from the "coronavirus factor". States are updating anti-records both for the number of infected people and the number of deaths. If in Europe, the situation is at least beginning to level down, then in the United States the pandemic is gaining momentum. In particular, the recorded number of deaths from COVID-19 over the past six months is more than 2.4 thousand. And over the past 17 days, the number of hospitalizations of patients with coronavirus has never decreased. The overall daily morbidity rate is also growing - from 100 thousand (per day) in early November to 170 up to 190 thousand (per day) in recent days.

Some macroeconomic reports are also of concern. For example, the rate of increase in the number of applications for unemployment benefits is growing for the second week in a row, approaching the 800 thousand mark. Earlier, disappointing retail sales data were published as well as weak inflation indicators. Based on indirect indicators, November Nonfarmies will also disappoint, increasing pressure on the US currency.

Exchange Rates 26.11.2020 analysis

This fundamental background supports the growth of the EUR/USD pair, primarily due to the weak positions of the US currency. From the technical point of view, the pair may well reach 1.1970 in the near future, where the nearest resistance level is located in the form of the upper line of the Bollinger Bands indicator on the daily chart. In addition, the upward trend is confirmed by the "Parade of lines" signal of the Ichimoku indicator and the location of the price between the middle and upper lines of the Bollinger Bands indicator.

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

Irina Manzenko,
Analytical expert
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