The US dollar has long been considered a safe currency for global investors. Therefore, any situation where the economy is injected with a massive financial aid leads to the dollar doubling in rate.
However, the negative side of this is that as capital inflows to the United States increase, the dollar risks of becoming oversold.
At the moment, the US has already pumped trillions of dollars into the economy, all of which is aimed at supporting the country amid the COVID-19 pandemic. Aside from that, vaccination is underway, so as a result, the economy has started to climb up again. Financial markets favor these steps because with it, investors choose to trade economically sensitive assets.
For instance, according to the Bank of America, the volume of short positions on the dollar reached the highest level in December. And, according to the CFTC (Commodity Futures Trading Commission), the rate on bearish positions (USD) is at a 10-year level.
Of course, there is still a chance that traders will run to the dollar. But so far, what is more possible is a rebound in short positions. To add to that, forecasts about a trend change should not be made yet, especially since speculative activity, at the moment, is extremely high.
What happened on the trading charts?
EUR / USD has moved from 1.2130 to 1.2175. Traders attempted to break 1.2130, but due to negative data on the US labor market, the movement slowed and the euro turned back to 1.2175.
Market dynamics was around 67 points, which is 13% below the average. However, this decrease in volatility did not have a strong effect on speculative activity, as evidenced by the candles in the trading chart.
At the same time, the weekly chart shows that the euro is trading at the peak of the medium-term upward trend, where only the current week shows a local rebound. In simple words, full-sized correction is still a long way off.
As for the GBP / USD pair, the quote is fluctuating near the local high for several days now. However, around 1.3690 / 1.3705, traders rather encountered strong resistance, so as a result, the volume of long positions decreased in the market.
The dynamics at that time has an average of 90 points, which is 32% below the average for overall volatility.
In any case, the pound is trading at a clear upward direction (without any pullbacks) in the weekly chart. However, since there are no sharp price changes, we can assume that there is stagnation, which could lead to a correction soon.
Market expectations and prospects
A report on US retail sales will be published today. Economists forecast that it would come out at 0%, which can be regarded as positive news since last November, the data was -1.1%.
Aside from that, consequential events are happening in the US right now. In particular, these are the passing of Donald Trump's impeachment resolution and Joe Biden's announcement of a new economic stimulus. Speculators will use these situations to add trading positions in the market.
But in the meantime, the rate of EUR / USD is fluctuating around 1.2130 / 1.2175. There is a chance that it will decisively move downwards, as evidenced by the repeated movement towards 1.2130.
For this to happen, euro bears need to hold the quote below 1.2130, preferably with a breakout below 1.2111. After that, EUR / USD could drop further down towards 1.2070 - 1.2000.
But if the bears fail to bring the quote down, the euro could stay trading at the peak of the medium-term upward trend.
Indicator analysis shows that all time frames produce a sell signal, mainly due to the correction and movement at 1.2130.
As for GBP / USD, there is a slight pullback from 1.3690 / 1.3705, so now, the quote is trading around 1.3611 / 1.3705.
Many assume that movement is going to slow because of the decrease in long positions, so it is better to avoid making hasty actions. In short, do not trade until the quote breaks out of 1.3611 / 1.3705.
If the pound finally drops below 1.3600 (in the H4 chart), open short positions. Such could lead to a full-sized correction, the direction of which is 1.3500-1.3300, depending on the stability of trading interest.
But if the quote moves above 1.3710 (in the H4 chart), open long positions towards 1.3900-1.4000.
Indicator analysis shows that the hourly and daily time frames produce a buy signal due to the price trading at the peak of the medium-term trend. Meanwhile, the minute time frame is showing a sell signal because of the pullback from 1.3690 / 1.3705.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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