Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 88.9105
The EUR/USD currency pair continued to trade more than calmly on Wednesday. While there is panic and chaos in the cryptocurrency market, as bitcoin crashed down as if a twelve-pound core was tied around its neck, the US dollar managed even to strengthen a little. Such a downward movement of the euro/dollar pair is even difficult to call a correction. It's hard even to call it a pullback. Thus, in general, the pair's movement over the past day has not changed at all. As evidenced by all the indicators of the "Linear Regression Channels" trading system, the upward trend continues. The US dollar is still under the strongest market pressure, expressed by both global technical and global fundamental factors. Recall that this list of factors now does not include macroeconomic statistics or banal news, such as the speech of Jerome Powell or Christine Lagarde. We have already said that the situation has changed dramatically in all markets over the past year. Now it should be borne in mind that central banks have intervened, pouring trillions of dollars and euros into their economies. Thus, analyzing currencies through the prism of ordinary statistics, which "works" perfectly in normal times, does not make any sense. The money supply in the United States continues to inflate. Therefore, whatever the pace of recovery of the US and European economies, it does not matter much for the euro and the dollar. The euro continues to grow because the money supply in the US continues to grow at a much higher rate than the EU money supply. Perhaps the big players also impact, although, judging by the COT reports, their effect on the pair is not the greatest. Well, we should also not forget that in 2017, a new global trend for the euro/dollar pair supposedly began. It means that the euro will strengthen in the next 3-5 years.
Meanwhile, US Treasury Secretary Janet Yellen spoke at an event hosted by the US Chamber of Commerce. During her speech, Yellen said flatteringly about the stimulus packages proposed by Joe Biden, spoke about revising the country's financial policy and the reconstruction of the American economy. In her opinion, the US economy is still lagging behind its pre-crisis growth trajectory, and infrastructure needs investment. The US economy should remain competitive, according to Yellen. According to her, after the arrival of the administration of President Joe Biden, the main tasks are to defeat the pandemic, overcome all the consequences associated with it. Yellen called all the initiatives proposed by Joe Biden "useful for the American economy." From her perspective, the country needs two stimulus packages of $ 2.25 trillion (infrastructure) and $ 1.8 trillion (family). These packages will ensure that the American economy does not lag behind its competitors in the international arena and that American families have great opportunities. Yellen also noted that she believes the changes to the tax system proposed by Joe Biden are reasonable. In her opinion, income and spending inequality in American society is a problem that should be addressed. Many ordinary Americans pay more income taxes (in percentage terms) than millionaires or billionaires, who actively use various "loopholes" and tools to lower tax payments. In particular, we are again talking about a single corporate tax since many large investors and corporations deliberately register in "low tax zones" and conduct their activities in the United States. "Since corporate taxes are at a low level (just one percent of GDP), we believe that the corporate sector can contribute to the recovery from the pandemic. We propose to return the corporate tax to historical norms," said Janet Yellen. Other high-ranking officials objected to her during the event, saying that now is not the time to raise taxes, thereby slowing down the economic recovery. Susan Clark, Chairman of the US Chamber of Commerce, believes that the tax increase will hit American businesses and their employees. In addition, many US politicians believe that two more stimulus packages will lead to an overheating of the economy and an even more significant increase in inflation. It is hard to disagree with the latter opinion since inflation is already 4.2% y/y. Despite attempts to calm the markets, made by several representatives of the FOMC, most experts believe that inflation will continue to rise. All for the same reasons that we have been talking about for the last six months. American dollars are becoming more and more in the American economy and around the world. And this cannot but lead to the depreciation of the US currency.
However, for the time being, these proposals are still only proposals. Republicans, who traditionally represent the interests of wealthy Americans and corporations, oppose tax increases. However, little depends on their opinion now since both houses of Congress are controlled by Democrats. In principle, if all Democrats support the initiatives of Joe Biden and Janet Yellen, the Republicans can count as they please, the bills will still be passed. The question is whether the Democrats will want to go into open conflict with the Republicans, as Donald Trump did in the opposite direction at the time. Despite the open confrontation between the two ruling parties, decisions of national importance should consider the views of both parties. However, the previous stimulus package was adopted to bypass the opinion of the Republicans, and there is an opinion to assume that it will be the same. Two new stimulus packages totaling $ 4 trillion mean that the US dollar can continue to fall in price for a long period. This money will be poured into the economy gradually, so the money supply will continue to grow.
The volatility of the euro/dollar currency pair as of May 20 is 63 points and is characterized as "average." Thus, we expect the pair to move today between the levels of 1.2149 and 1.2275. A reversal of the Heiken Ashi indicator to the top will signal the resumption of the upward movement.
Nearest support levels: S1 – 1.2207 S2 – 1.2146 S3 – 1.2085
Nearest resistance levels: R1 – 1.2268 R2 – 1.2329
Trading recommendations:
The EUR/USD pair has started a weak round of correction. Thus, today it is recommended to open new long positions with a target of 1.2268 after reversing the Heiken Ashi indicator back to the top. It is recommended to consider sell orders if the pair is fixed below the moving average line, with a target of 1.2085.
