Euro/dollar: time for speculation
According to experts, the success of the European Union in the fight against the pandemic coronavirus and unprecedented measures to support the economy made a bet on the purchase of the euro against the dollar, almost a win-win situation. Analytical forecasts assume a downward trend in the US dollar and growth of EUR/USD pair to the level of 1.15 in the near future.
How justifiable would it be to buy EURUSD on local pullbacks? Nikolai Dudchenko, an independent financial analyst, answered Fortrader magazine's question.
- Alas, the scenario we wrote about in May did not materialize - EUR/USD broke through its 200 moving average and rose to the level of 1.1420. We, in our turn, expected the fall of Euro up to the parity level. At the same time, the situation with this pair now perfectly reflects the market mood of the participants, i.e. the utter uncertainty. Under these conditions, traders may try to latch on to any information in order to understand what the future movement will be.
The most correct position in the current circumstances would be just the position "outside the market," but no one forbids speculating on how events will develop further.
Tough times for the U.S.
According to the CFTC report of 09.07, short positions in the dollar index reached a maximum for the last 7 years. Here, indeed, it should be noted that given the pandemic, the risks to the U.S. currency have increased significantly. According to Johns Hopkins University, there have been at least 50,000 infected daily in the United States since July 07. The peak came on 10.07, when over 66 thousand confirmed cases were recorded. At the same time, in France and Germany (the most heavily COVID-19 infected countries), the number of confirmed cases rarely exceeds 1,000 per day. It is important to understand that Trump cannot fully deal with the pandemic right now, since the election in November is less than 4 months away. Against this background, and taking into account the unrest and the possible second wave of the epidemic, bad times could once again be in store for the U.S. economy.
On the other hand, in spite of everything, U.S. statistics show that the economy is showing signs of recovery. Business activity index The ISM Manufacturing PMI for June rose to 52.6 and unemployment fell slightly to 11.1%. At the same time, in the Eurozone, Markit calculated a PMI of around 47.4; the unemployment rate for May was 7.4%. By the way, many analysts more and more often begin to have doubts as to whether the American macroeconomic indicators reflect reality so objectively and whether there are no elements, so to speak, of working with numbers against the background of the forthcoming vote. We should not engage in conspiracy theories, as well as rule out the fact that the risks after the elections in the United States in November may significantly increase.
"Off the Market" is the best offer now
It is difficult to draw conclusions from this story. The turmoil in the U.S. on the brink of civil war does not add up to a more or less decent macroeconomic picture, meanwhile, just look at the COVID statistics and it gets a little uncomfortable. On the other hand, not so disastrous-looking Eurozone is showing quite weak manufacturing data. On July 17-18, there will be a discussion on EU economic recovery plan, but Lagarde has already said that it might not be possible to reach an agreement, which could also have a negative impact on the euro.
Perhaps "off-market" is the best that can be offered right now.
Technical picture on EUR/USD: on the daily time-frame the situation looks somewhat monotonous. The pair continues to move in the price range of 1.1170 - 1.1420. On the 1W TF the Williams %R indicator has entered the overbought zone, warning of a possible reversal. Thus, the probability of the pair reversal and strengthening of the dollar to the lower boundary of the price channel remains.