Euro or dollar?
Hello, dear colleagues!
As you know, in difficult times of crisis, much is clarified or confirmed. It's always been that way. The situation with the COVID-19 epidemic was no exception, which confirmed the demand for the US dollar and further strengthened the role of the Federal Reserve System (FRS) as the world's main central bank.
Previously, we have repeatedly heard that the euro may soon displace the US dollar from the pedestal of the world's leading reserve currency. However, the coronavirus epidemic once again pointed to the imperfection of the Eurozone's governance system, where disputes and disagreements are constantly occurring from time to time in difficult moments. It is enough to remember with what efforts the aid of Greece was approved, which had one foot already outside the door of the currency bloc.
Now it is a similar situation when richer countries are not in a hurry to help, but simply share money with poorer members of the European Union, who are most affected by COVID-19 and need support. The idea of issuing "coronabonds" to help poorer EU members whose economies are bursting at the seams from the effects of the pandemic has again exposed contradictions and increased fears of the collapse of the currency bloc. The positive news was the agreement between Germany and France to create a 500 billion euro bailout fund, but this issue will be finally resolved at a meeting of the European Commission, which will be held at the end of this month.
As for the US dollar, it remains in the leading position for investment and borrowing. It is enough to remember how in March the markets rushed for liquidity, which was just provided by the Fed by launching the printing press at full capacity. But the single European currency can not boast of such demand. Its share in the reserve funds of the world's leading central banks has significantly decreased. The soon-to-be-created assistance fund for the restoration of the EU economy may strengthen the euro's position in the foreign exchange market, and this began to happen last week.
Another major issue that is causing concern on global financial markets is another tension in relations between the United States and China. Let me remind you that last week, US President Donald Trump, who can rightly be considered a troublemaker of the world's peace, spoke out against Beijing's plans for a security law in Hong Kong. Against this background, there were fears in the markets that the US and China will not agree on the first phase of the trade agreement.
If we go to the technical picture of the main currency pair of the Forex market, then after the appearance of the previous doji candle last week, the quote strengthened. However, the last candle with the upper shadow, which is larger than the bullish body itself, leaves more questions than answers about the subsequent course movement.
It is also worth noting that after testing the most important psychological and technical level of 1.1000, the pair fell by a figure and finished trading at 1.0900. Although the closing price of the last five days was higher than the Tenkan line of the Ichimoku indicator, it is extremely difficult to assume the further direction of EUR/USD, judging by the weekly timeframe. The support zone is 1.0766-1.0727, and the resistance area is 1.1008-1.1017.
In the event of a breakout of the designated resistance area, the next target will be 1.1053 and 1.1065, where the 50 simple moving average and the Tenkan line are located, respectively. A break of 1.0727 will send the pair to retest the next support level of 1.0636.
As expected on Friday, the dedicated "shooting star" model still turned the price down, as a result of which the set goals were reached in the area of 1.0895-1.0875. From here, the expected rebound occurred and trading closed above the broken resistance level of 1.0895.
It is also necessary to note that the pair broke through the 89 exponential moving average and went down from the Ichimoku cloud. Of course, these factors can significantly strengthen the bearish sentiment for EUR/USD. On the other hand, under the 89 EMA and the lower border of the cloud, only one daily candle has closed so far, so it is too early to consider the breakdown of the 89 exponential and the exit down from the cloud as true.
A breakdown of Kijun at 1.0872 will confirm the implementation of the bearish scenario. If the pair returns to the limits of the Ichimoku cloud and again turns out to be above 89 EMA (black), the positions of the players to increase the course will strengthen and they will surely try once again to raise the price above 1.1000 and gain a foothold over this most important mark.
Conclusion and trading recommendations for EUR/USD:
Given the technical picture on the two timeframes considered, the highest priority, in my opinion, is for sales. I recommend taking a closer look at opening short positions after short-term rises to the levels of 1.0920 and 1.0940. At the same time, a true breakdown of the last mark will cast doubt on the bearish scenario, but it will not completely cancel it.
The opening of purchases can be estimated near the mark of 1.0885. If this level is broken and the quote is fixed below, on a pullback to the area of 1.0885-1.0900, it is already worth considering sales. If necessary, these recommendations may undergo some adjustments in the following days.
*Prezentowana analiza rynku ma charakter informacyjny i nie jest przewodnikiem po transakcji.
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