4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -128.8756
A new trading week begins with a continuing downward movement. Traders continue to wonder when the markets will fully return to normal and begin to respond to macroeconomic statistics. However, what is happening in the currency market is still a very good option. Volatility, in principle, remains high, but the euro/dollar pair mainly moves in one direction, without changing it every day. Thus, if not for the increased volatility, the trading could even be called quite comfortable. Although, for example, on Friday, despite a huge package of macroeconomic information, market participants showed the lowest volatility in the last 27 trading days. We still believe that the "correction against correction" option is the most likely. If the downward movement continues, it is likely that the local lows from March 20 will be updated. We believe that there are no reasons for further growth of the US currency now, given the fact that it is the United States that is now leading in the number of people infected with the "coronavirus", and Donald Trump predicts 200,000 deaths from the epidemic. In Europe, the situation is not better, but the conditions for the alliance and the States are now almost the same, so it is unclear why the US dollar is growing mainly. We believe that this scenario is illogical, despite the fact that most traders may once again turn to the "dollar faith", which will push the US currency up and the EUR/USD pair down. A more likely option with a "correction against correction" suggests a reversal of the euro/dollar pair up on Monday or Tuesday with a return to the area of 1.1000 and further consolidation after the strongest growth and even stronger fall of the pair in the period from February 20 to March 20. We believe that the markets should calm down completely after the latest shocks or only then resume the trend movement. However, as always, we recommend that traders first evaluate technical factors, do not try to guess the reversal and trade strictly "on the trend".
Meanwhile, global rating agencies continue to update their forecasts for the world economy in 2020. If at first all major financial institutions and organizations agreed that the world economy will decline by literally a tenth of a percent, now the forecasts are much more pessimistic. In 2020, Fitch expects the global economy to decline by 1.9%. It is noted that the speed of spread of the COVID-2019 virus affects the revision of forecasts for the worse. The United States will lose about 3.3% of GDP, the eurozone - 4.2%, the UK - 3.9% by the end of 2020. At the same time, China's economy will show a small growth rate, no more than 2%, and only if there is no second outbreak of the "coronavirus" and Beijing does not have to re-enter the quarantine. In the second quarter, Fitch experts expect the EU and the US to reduce GDP by 7-8%. According to the agency's analysts, the quarantine measures have a "dramatic impact" on economic activity, reducing it by about 20%. The final impact of the epidemic on GDP will depend on the duration of quarantine measures. Fitch also assumes that the US unemployment rate of 10% will be reached in the second quarter of 2020, which will lead to a decrease in investment, and consumers will sharply reduce their spending. All this will trigger a chain reaction. The more consumers reduce their spending, the more businesses will have to reduce, as demand for goods and services will fall. A new reduction in business can lead to higher unemployment, a new drop in GDP, which will cause consumers to reduce spending even more. All this will also lead to a new fall in stock prices. Fitch also reduces the forecast for the price of Brent oil to $35 per barrel.
As we can see, the forecasts are disappointing. However, they come not only from rating agencies and various major financial institutions. EU Commissioner for Internal Market, Thierry Breton, also believes that by the end of 2020, the EU expects a rather strong reduction in the economy, about 2-2.5%. According to Breton, the outbreak has disrupted global supply chains around the world, many countries have closed their borders, and most of the world is in quarantine. "We are at war with the virus. Economic war," said the Commissioner. Breton also noted that before the crisis (and what is happening now in the world in economic terms is already called a "crisis"), EU officials expected a reduction in growth rates to 1.4%, but now forecasts predict a drop in the economy by several percent. And these are not final forecasts.
The Eurogroup also made its statement regarding the global crisis caused by the COVID-2019 pandemic. The Council of Finance Ministers of 19 eurozone countries held a video conference in which they declared the need for fiscal measures to support the economy. The number of these measures can be significant and constantly increase as the quarantine measures are extended. "The economic shock from coronavirus, combined with the economic downturn expected this year, as well as the size of the measures we have agreed on, will have a significant impact on budgets," the Eurogroup said in its final report. All the authorities of the alliance countries will introduce temporary response measures. Among them are budget expenditures aimed at containing and treating the COVID virus, supporting the liquidity of companies affected by the quarantine and epidemic (including tax breaks, state guarantees to support their credit debts), measures to prevent loss of employment and income.
Thus, in principle, the situation around the world is approximately the same. With some exceptions, the virus is spreading everywhere, the population of almost every country is in self-isolation, and the governments of most countries in the world are pouring billions or even trillions into the economy to save it from complete collapse. In the context of the global crisis, which is likely to be worse than the mortgage crisis of 2008, it makes no sense to make long-term forecasts for a particular currency pair. Thus, we also recommend that all traders trade exclusively "on the trend" in order to avoid high financial losses.
The volatility of the euro/dollar currency pair remains at quite high values, but it continues to decline. As of April 6, the average volatility value is 126 points. We believe that the markets continue to return to normal at a low rate and this is very good news for traders. Today, we expect a further decrease in volatility and price movement between the levels of 1.0681 and 1.0933. Turning the Heiken Ashi indicator up will signal a turn of the upward movement.
Nearest support levels:
S1 - 1.0742
S2 - 1.0620
S3 - 1.0498
Nearest resistance levels:
R1 - 1.0864
R2 - 1.0986
R3 - 1.1108
Trading recommendations:
The EUR/USD pair is still moving down. Thus, traders are now recommended to stay in the sales of the euro currency with the goals of 1.0742 and 1.0681, until the Heiken Ashi indicator turns up. It is recommended to buy the euro currency not earlier than the reverse fixing of the bulls above the moving average line with the first goal of the Murray level of "2/8"-1.0986. Increased caution is still recommended when opening any positions, as volatility is still high.
