Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -190.2914
The EUR/USD currency pair resumed its downward movement on Tuesday, March 30, after a minimal pause. The US currency is again in demand, which is very good since now the downward trend is visible, which means that traders can make money on it. We have repeatedly said that any fundamental hypothesis requires specific technical confirmation. The fundamental background is unimportant. There is a trend – you should work on it. We continue to believe that the current downward movement of the pair is nothing more than a correction against the one-year upward trend that began last March. However, what difference does it make if it is a correction or not? On the 4-hour timeframe, there is a downward trend, thus, you should trade now exclusively not for a fall. Do not guess when this trend will end.
However, it is also not necessary to completely forget about the fundamental background. Still, it is unlikely that anyone will deny that the "foundation" and "macroeconomics" influence the movement of many instruments and currencies. However, the situation in the United States and the European Union is now such that it is very difficult to link any particular topic to what is happening in the foreign exchange market. We have already said that there is a high probability that the European currency is now simply being adjusted. However, many analysts and experts still try to tie any more or less significant movement to some fundamental event. For example, yesterday, the yield of US government bonds for 10 years again showed growth and then most analysts wrote in their reviews that the dollar is becoming more expensive due to the growth in the yield of treasuries. The fact that at a time when the yield of treasuries was declining, the US dollar could also become more expensive, no one cares. The fact that, for example, yesterday the European currency was standing in one place, and the pound sterling was growing, also does not interest anyone. Although it is obvious that the factors that affect the pound and the euro are not the same now. Further, at the end of last week, the investment fund Archegos Capital Management went bankrupt, which used 5:1 leverage, that is, it bought shares of Chinese technology companies with borrowed funds. The fund bought shares through such investment banks as Nomura, Credit Suisse, Goldman Sachs, and Morgan Stanley, as a result, when some of the shares that the fund owned in large quantities fell sharply in price, demands for collateral from banks began to arrive. When the Archegos Capital Management fund failed to meet the demands of the banks, they began to massively get rid of the shares that belonged to the fund. But even in this case, all banks will suffer serious financial losses due to the bankruptcy of Archegos Capital Management. It is clear that when shares are sold, the value falls, so there was no question of selling everything at a real, market value. Experts believe that this bankruptcy may lead to margin calls on other funds that also exist due to high leverage. In general, the situation in the stock market is not very stable right now, so some investors can escape from the most risky assets by simply selling them. Thus, a new round of strengthening of the US currency may be associated with a panic in the stock markets. However, we believe that this factor will not have a long-term impact on the US dollar.
Thus, the US currency continues to rise in price either solely on technical factors, or the basis of a whole set of fundamental factors. In the first two trading days of the week, not a single important macroeconomic report was published in the United States and the European Union. There was no important news from the Fed or the ECB, and there was no speech from a senior official. Moreover, all the other fundamental topics that we have been paying attention to recently have also not changed. For example, in the European Union, vaccination of the population is still proceeding at a low rate. At the same time, the displeasure of the population of the European Union is not even that the vaccination rates in Europe are low, but that they are lower than in the UK, Israel, or the United States. Also, the European Union has several times announced the beginning of the third "wave" of the "coronavirus". This was stated by the head of the Ministry of Health of Austria Rudolf Anschober, as well as the Minister of Health of Germany Jens Spahn. Many EU politicians have noted that the current volume of the vaccine is not enough to stop the third "wave". At the same time, there are still absolutely not enough vaccines to speed up the vaccination process.
In the States, the situation with the "coronavirus" is calmer. There has been a small spike in new cases recently. Although the country has one of the fastest vaccinations of the population in the world, yet US President Joe Biden said that many Americans believed that COVID-2019 had already been defeated and began to neglect social protection measures, which could lead to a new wave of diseases. Biden urged everyone to continue to adhere to the quarantine rules, in particular, social distancing and wearing a mask.
Also, the media continues to exaggerate rumors about a new package of stimulus measures that may be proposed by the government of Joe Biden. If earlier it was expected that the new package of incentives would amount to 2-3 trillion dollars, then now there are rumors that it may amount to all 4 trillion. It can be approved by the summer of 2021, and the money from this package will be spent on infrastructure. However, this is an additional $ 4 trillion, which will again be poured into the economy. In total, in 2021, $ 8 trillion can be used as incentives, not counting the money that the Fed uses to buy bonds and other assets every month. Thus, we do not believe that with such a skew in the money supply of the EU and the US, the dollar will be able to become more expensive during 2021. We still believe that the current downward movement of the pair will end in the next month.
The volatility of the euro/dollar currency pair as of March 31 is 49 points and is characterized as "average". Thus, we expect the pair to move today between the levels of 1.1667 and 1.1765. A reversal of the Heiken Ashi indicator to the top will signal a round of upward correction.
Nearest support levels: S1 – 1.1719 S2 – 1.1658 S3 – 1.1597
Nearest resistance levels: R1 – 1.1780 R2 – 1.1841 R3 – 1.1902
Trading recommendations:
The EUR/USD pair continues its downward movement. Thus, today it is recommended to stay in short positions with targets of 1.1667 and 1.1597 until the Heiken Ashi indicator turns up. It is recommended to consider buy orders if the pair is fixed above the moving average with targets of 1.1841 and 1.1902.
