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Forex Analysis & Reviews: Overview of the EUR/USD pair. December 3. Why does the euro continue to grow? Compare the euro and the dollar, the state of the US and EU economies in December 2021.
time 03.12.2020 03:36 AM
time Relevance up to, 04.12.2020 02:05 AM

4-hour timeframe

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Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - upward.

CCI: 161.5180

The third trading day of the week for the EUR/USD pair was again in an upward movement. More precisely, the upward movement has not stopped since Tuesday. During the last round of the upward movement, the pair's quotes worked out the Murray level "6/8"-1.2085. This is the level they failed to overcome on their first attempt. However, in general, the upward trend continues, and the strengthening of the European currency still raises a huge number of questions. At this time, there is simply no corresponding macroeconomic or fundamental background that would be able to push the pair up so confidently. Recall that just a month ago, the pair was trading in a 200-point side channel, although there were plenty of important fundamental topics. But all of them were ignored by traders and when nothing is happening, the euro currency suddenly began to grow strongly for no reason at all. All this is similar to the growth of oil, which happens from time to time to record values. In the markets, this phenomenon is called a "soap bubble". The price of a certain asset (or currency) begins to rise without a clear reason. This phenomenon is explained quite simply. The price of something is growing and more traders want to join this trend and also buy this "something", which causes even more demand and price growth. Thanks to this phenomenon, oil, for example, could cost $ 140 per barrel, although now this cost looks fantastic. Well, let's take the pre-crisis period and get the cost of one barrel of Brent about 50-60 dollars. But not 140! You can't say that between the prices of $ 140 and $ 60, the demand for "black gold" decreased by two or more times. The same thing is approximately happening now with the euro currency (and the pound sterling also). There are no visible reasons for the growth of this currency. But major players continue to buy it (or get rid of the euro currency), which leads to such a groundless growth of the euro/dollar pair.

Some might say that the American economy is going through a bad time. We can argue that any economy is going through a bad time right now. The US currency fell quite logically in the period from March to September-October. GDP in the second quarter in the US sank by 33% and in the EU - by 12%. This factor was enough to sell off the US currency. But now the situation is radically opposite! It is the European economy that will shrink in the fourth quarter, as they have a lockdown running for a whole month, which is not the case in America. And this factor is visible in the indices of business activity in the service sectors. In the EU, this indicator went below 50.0, in America - remained above 50.0. Some may say that the situation with the "coronavirus" in the States is much sadder than in the EU. This is true, but a new surge of diseases overseas began in September-October, so why did the dollar start a new round of decline just now? Moreover, in America, "lockdown" was not announced for the near future.

Some might say that it's all about the EU and US governments, their help to the economy, and central banks. However, both the heads of the Central Bank of the Eurozone and the United States, who have recently spoken with enviable regularity, have repeatedly stressed the growing risks from the second "wave" of the epidemic and warned of a "difficult winter". That is, there was no such thing as the head of the Fed talking about stability and full of optimism, and the head of the ECB - preparing for a new fall in the economy. Jerome Powell calls on Congress to allocate aid to all unemployed and small businesses as quickly as possible, pointing to a slowdown in the economic recovery after a record third quarter. But Christine Lagarde also calls for the approval of the 2021-2027 budget and the recovery fund as soon as possible. Also, Lagarde announced the expansion of the quantitative easing program in December. Thus, we conclude that Europe and the United States now have similar economic problems.

Maybe other macroeconomic indicators are to blame? But the States did see a record recovery in the third quarter. This applies to the unemployment rate, the labor market, and inflation. Yes, inflation is still far from the Fed's target level, however, the European Union is experiencing deflation for the fourth month in a row! The unemployment rate in the US is 6.9% and in the European Union - 8.4%. Thus, everything is in favor of US currency.

Maybe the reason is the US political crisis, which we have written about in recent months? However, oddly enough, it did not receive any development after the elections were officially held and the results of the vote were announced. Donald Trump has filed a huge number of lawsuits in the courts, but now it seems that he did it for the sake of form. It seems that Donald Trump has long accepted defeat in the election, but at the same time wants to run for President in 2024. Accordingly, he needs to create a certain bridgehead for this. First, Trump needs as many people as possible to believe that the Democrats rigged the 2020 election. Second, he needs the four years of Biden's presidency to be even more disastrous than his. Then Trump will have an iron-clad excuse, saying that under him the country experienced the first phases of the COVID-2019 epidemic, and under Biden, there was already a vaccine, and the "coronavirus" itself was no longer a novelty. Thus, Trump will criticize all of Biden's actions. Especially if Biden can't boast of high economic growth rates. But all this will be later, in the future, and now in political terms, everything is calm in the States. Therefore, even this factor cannot be linked to the current depreciation of the US currency.

Thus, we continue to believe that the current movement of the pair is illogical. The latest COT report indicated a change in the mood of professional traders. Now it is more "bullish", however, it is necessary that such a picture is fixed at least three weeks in a row to conclude that the major players are returning to long-term purchases of the euro. Well, from a technical point of view, nothing has changed in recent days. All trend indicators are directed upwards, there are no signs of the end of the upward trend yet. Therefore, it is still recommended to trade "according to the trend".

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The volatility of the euro/dollar currency pair as of December 3 is 79 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.2016 and 1.2174. A reversal of the Heiken Ashi indicator downwards signals a round of corrective movement.

Nearest support levels:

S1 – 1.2085

S2 – 1.2024

S3 – 1.1963

Nearest resistance levels:

R1 – 1.2146

R2 – 1.2207

R3 – 1.2268

Trading recommendations:

The EUR/USD pair continues to increase its upward movement. Thus, today it is recommended to stay in buy orders with targets of 1.2146 and 1.2174 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders if the pair is fixed below the moving average with a target of 1.1902.

Paolo Greco,
Analytical expert of InstaForex
© 2007-2022
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