4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 31.4677
The US currency has fallen into the abyss in recent weeks at the rate of almost free fall. Such strong growth of the euro and the pound against the dollar has not happened for a long time. And given the fact that there has been no optimistic news in the European Union and the UK recently, then, as we have repeatedly said, the reason for the fall of the dollar is only the "4 crises" that are raging now in the United States. We have already written about them many times, as well as about the fact that the upward trend can be interrupted at any time. Last Friday, buyers took the first step towards completing the upward trend. A powerful pullback followed and now it is unknown whether traders will want to start buying euros and selling the dollar again? After all, despite the fact that it is now very difficult to find a sphere of life in America where everything would be in order, the euro currency has already risen quite significantly against the dollar. The American currency cannot fall forever! Therefore, we will not be surprised if the dollar rises this week, even though there are no fundamental reasons for this now.
By and large, the past trading week ended as expected. The most interesting macroeconomic report on Friday was GDP in the Eurozone for the second quarter. It turned out that GDP declined by 12.1% in quarterly terms, which is approximately equal to the forecast of -12%. So we can't even say that the numbers were much worse than traders' expectations. The second most important report of the day – EU inflation for July – was even better than forecasts. Core inflation was 1.2% y/y with a forecast of +0.8%, and overall inflation was + 0.4% y/y with a forecast of +0.2%. Thus, we would even conclude that the euro currency had no fundamental or macroeconomic reasons to fall on this day. However, the euro/dollar pair absolutely needed to adjust. And this correction has been brewing for a long time.
The chief newsmaker of recent months and years, Donald Trump, again came under massive criticism from the media. After it became known that the American economy shrank by 33% in the second quarter, which has never happened in the history of the United States, the American president immediately came under a barrage of criticism. In principle, this is logical when the head of state not only rests on his laurels when everything is good in the country, telling people left and right that it is his merit, but also takes responsibility for what is happening when the country is in crisis. Trump, of course, is unlikely to take responsibility for all the types of crises that now exist in the United States, however, the Americans have put the responsibility for what is happening on Trump and the government as a whole. And this is normal and logical. The government is to lead the country. If the results are bad, then the government needs to change. At least in democratic countries, this is true, and the US proclaims itself a democratic country. Thus, the conclusion is self-evident. Trump needs to go. And a chain of inferences, which now sits in the minds of Americans is as simple as ever: Trump has a fight with China - China "took revenge" on the United States with a "coronavirus" - even if there was no targeted revenge, the US government has "missed" all the preparations for the epidemic and are unable to respond effectively - in Europe, they managed to stop the first "wave" - in the United States, no - the EU GDP (for example) decreased by 12% in the second quarter - in America, by 33% - unemployment in the EU increased just a few percent - in the United States, at 7-8% by conservative estimates - the new "wave" of COVID-2019 may lead to new consequences for the economy, even more finishing it - who is responsible for all this? The answer is obvious.
But even this is not the most interesting thing. The most interesting thing is how Trump is trying to "whitewash" himself, to prove to the American people that he is not to blame for everything that is happening, and most importantly – to be re-elected for a second term. Some respected media outlets with a global reputation have noticed interesting patterns in Trump's behavior. As soon as any significant event happens in the United States that "casts a shadow" on the president, the president himself immediately makes a loud statement to distract the attention of the people from negative news. For example, Trump got in touch with a proposal to postpone the presidential election 19 minutes after the Bureau of Statistical Information published -33% of GDP. Earlier, Trump began to inflate the baseless case of "Obamagate", accusing Joe Biden, Barack Obama and other Democrats of dishonest play in the 2016 election, saying they did not want his victory and put all their forces "sticks in the wheels", despite the fact that no evidence of their words. Then, the number of deaths from the "coronavirus" crossed the 80,000 mark. And even if this is a pure coincidence, and Trump's proposal to postpone the election is serious, it does not add points to the president's karma, because his proposal was immediately criticized by everyone, even Republicans, who said that never before in the history of the United States has a presidential election been postponed. In general, "American circus" continues and it is unclear how it can end.
Thus, at the moment, we would say that the US currency has no prospects. Nevertheless, they are there. First, the technical ones. Almost non-stop growth continued on July 1, that is, exactly a month. During this time, the euro rose by 7 cents. For comparison, for the entire 2019 year, with a favorable fundamental background for the dollar, this currency has grown by 2 cents. Thus, traders can expect 200-300 points of correction. Then, secondly, all the current negative fundamental and macroeconomic background has already been played out. It is clear that the longer the epidemic persists in the US, the longer the mass riots continue, the more Trump will "bury" his chances of reelection thanks to absolutely opaque actions and statements, the more likely it is that the fall of the US currency will continue. However, we still believe that first there should be these very reasons for new sales of the US currency. Thus, as long as the price is above the moving average line, we continue to recommend trading on the trend no matter what. It is recommended to consider seriously selling the pair only after overcoming the moving average. But at the same time, we must understand that a correction of 200-300 points down is now very likely. So we must be ready for this option.
The volatility of the euro/dollar currency pair as of August 3 is 105 points and is now characterized as "high". Thus, we expect the pair to move today between the levels of 1.1673 and 1.1883. The upward reversal of the Heiken Ashi indicator signals the end of the downward correction within the ascending trend.
Nearest support levels:
S1 – 1.1719
S2 – 1.1597
S3 – 1.1475
Nearest resistance levels:
R1 – 1.1841
R2 – 1.1963
Trading recommendations:
The EUR/USD pair has started a long-awaited round of corrective movement. Thus, at this time, it is recommended to continue to consider the possibility of opening purchases with the goals of 1.1841 and 1.1883, but to do this, you need to wait for the Heiken Ashi indicator to turn upward. It is recommended to open sell orders no earlier than when the pair is fixed below the moving average line with the first target of 1.1597.
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