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30.12.2020 11:39 PM
EUR/USD. When the risk is justified: buyers of the pair storming the 23rd figure

Trading on the eve of a long New Year's weekend is a risk. This period is characterized by impulsive and poorly predictable price movements amid low liquidity and profit taking. This applies to absolutely all currency pairs, not to mention the most popular ones - dollar ones. Many traders and market makers today or tomorrow will close the month, quarter and year, which is why corrective pullbacks are possible. Therefore, short-term trading is not worth considering now. If we talk about medium and long term prospects, the situation here is somewhat different. The general trend, due to the weakening of the dollar, is likely to continue at the beginning of next year (according to some forecasts, the greenback will lose ground throughout the entire 2021). Therefore, trading strategies based on the game against the dollar will be relevant in January as well.

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Take note that the US dollar index has been gradually decreasing since the beginning of November, reflecting the skepticism of traders towards the greenback. If two months ago the index was at the level of 94 points, then at the moment it has dropped below the 90th mark. And although the downward trend was accompanied by upward pullbacks, the overall trend is visible to the naked eye. This situation made it possible for buyers of the euro-dollar pair to strengthen by more than 700 points. Since November, the EUR/USD bulls have managed to climb from 1.1595 to today's high of 1.2310. And apparently, traders will not limit themselves to conquering the 23rd figure: the main target for growth is the 1.2415 level - this is the price high of April 2018. In the next few weeks, this price target will become a kind of beacon for the pair's buyers.

The locomotive of EUR/USD growth is the dollar, which is weakening throughout the market. The euro's positions do not appear so confident, but at the same time it does not pull the price to the bottom, like an anchor. Thanks to this combination, we are witnessing a fairly stable upward trend.

Why is the dollar getting cheaper? Because traders have lost interest in protective instruments, which include the US currency. The market is dominated by general optimism, due to which the main favorites of the foreign exchange market are risky/commodity currencies. Market optimism, in turn, is driven by several factors. First, the US economy received $900 billion in additional aid. Negotiations between Democrats, Republicans and representatives of the White House have been going on for six months - from the end of May. And the compromise bill has only been approved now, which includes one-time subsidies to Americans, additional unemployment benefits, support for certain industries, and so on. In addition, the new package provides for the allocation of nearly $300 billion for the Paycheck Protection Program. This program is designed to help businesses maintain jobs at a time when the economic pressure of the pandemic could lead to additional layoffs. After the bill was passed, the US stock market rallied, reflecting the general optimistic sentiment of investors.

The so-called coronavirus factor has been some sort of ally for the dollar for a long time now. The panic of traders created excitement around the greenback, which was used by the market as the main protective tool. However, at the moment the situation is mirrored. After Europe and the United States approved the first vaccines against COVID, the notorious coronavirus factor has ceased to provoke spikes in anti-risk sentiment. Even the recently discovered new strain, which turned out to be more infectious, did not allow the dollar bulls to fully manifest their character.

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The fact is that vaccination against coronavirus has already started in 22 countries around the world. In particular, to date, 2,230,000 doses of vaccines have already been introduced in the United States. In West Virginia, Alaska, North and South Dakota, vaccination rates have reached almost two percent. Similar dynamics is observed in other large states. In particular, a million doses of the vaccine have already been introduced in China, more than 600,000 in the UK, and more than 400,000 in Israel and Russia. Europe has just started vaccination (since December 27), so the results here are much more modest. In other words, the financial world at the end of the outgoing 2020 saw the light at the end of the tunnel, which allows us to meet the new, 2021 year with optimism.

All this speaks about the persisting potential of the EUR/USD pair's growth and about the inability of the bears to reverse the trend - at least in the medium term. From a technical point of view, long positions on the pair are also a priority. The price is on the upper line of the Bollinger Bands indicator on the daily chart, as well as above all of the Ichimoku indicator lines (including the Kumo cloud). You can consider longs on the pair - with the first intermediate target of 1.2310 (2.5-year high, which was updated today). If buyers overcome this target and settle above it, the next stop will be the 1.2350 level.

Irina Manzenko,
Analytical expert of InstaForex
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