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The euro/dollar pair found a pivot point in the area of the local low (1.1754) on August 21, where a price rebound naturally occurred. This allowed us to return to the previously passed level of 1.1800.
The correction from the psychological level 1.2000 has a scale of about 250 pips, which is considered a significant price change, but given the scale of the medium-term upward move, this is a minor correction. Thus, sellers still have the opportunity to lower the euro rate to 1.1700, which will not be considered something major in the market and will not disrupt the structure of the mid-term move.
What is happening on the market now?
Many experts are inclined towards a technical correction, in the structure of the downward trend from September 1. Over the past day, the weakening of the dollar is recorded for all major currency pairs, which can be considered a confirmation of the assumption of a technical correction of dollar positions.
It should be noted that the European currency has risen by more than 12% since spring of this year, which complicates the work of the European Central Bank and affects inflation.
Moreover, even the desire to recreate the euro's upward trend will not carry a positive reaction to the EU economy, which means that the current upward movement is naturally local, probably amid emotional turmoil that 2020 brought.
Analyzing the last trading day by the fifteen-minute, you can see that during the first half of the European session, the quote managed to reach a local low (1.1754) on August 21, where it immediately stopped and turned sharply at 11:00 UTC+00. The round of long positions was very similar to speculative activity, where the movement had the form of inertia on a scale of more than 70 points.
In terms of daily dynamics, an acceleration by 29% is recorded relative to Tuesday. Activity is growing, but if we compare it with the correlated pair - GBPUSD, there is some restraint in the euro, which means that speculators are just warming up before the main rally.
As discussed in the previous review, we predicted the price movement to the August 21 low - 1.1754, where consolidation is possible. The following short positions were expected after a clear consolidation below this coordinate (1.1754), at 1.1700. At the same time, an alternative scenario was also considered in the previous review, where you could earn profit.
Considering the trading chart in general terms (daily period), a corrective movement from 1.2000 is fixed, where the quote returned to the levels of the previous month. In fact, the medium-term upward trend is at the deceleration stage.
The news background of the past day contained the JOLTS data on the number of open vacancies in the US labor market for July, where everything turned out to be even better than forecasted. So, the previous figures were revised for the better from 5.889 thousand to 6.001 thousand, and the current data came out with an increase to 6.618 thousand vacancies, with a forecast of growth to 6,000 thousand.
Such positive statistics for the United States stops the inertial upward trend and a pullback towards the 1.1800 level occurs.
In terms of the information background, there is anxiety caused by the actions of Britain regarding the previously reached agreement on the Brexit process. So, the UK government published a bill yesterday that changes the agreement on leaving the EU and allows violation of international obligations assumed by London in case of failure of negotiations with Brussels. The project is still at the stage of discussion by the parliament, but has already managed to cause a wave of criticism from the European Union and Britain itself.
EU officials urge Britain to change its mind, as a departure from the treaty would violate international law and undermine the credibility of the United Kingdom.
According to the head of the European Commission, Ursula von der Leyen, the agreements must be respected and not violated. Otherwise, everything goes to the loss of confidence.
"I am very concerned about the British government's statements of intent to violate the Withdrawal Agreement. This would violate international law and undermine confidence," Ursula von der Leyen tweeted.
A similar opinion is expressed by the representative of the German Ministry of Foreign Affairs, Maria Adebar. According to her, the German authorities are concerned about London's statement about its intention to unilaterally complete the withdrawal process, which does not meet the terms of the agreement signed by the parties. Therefore, the European Union cannot accept the statement of British Prime Minister, Boris Johnson, on the possible withdrawal of the UK from the EU without a trade agreement, if it is not signed by both sides before October 15.
As we can see from the above, the volume of hysteria is only growing, and soon the market will feel it on a full scale.
In terms of the economic calendar, we have a meeting of the European Central Bank (ECB) today, where the interest rate will remain unchanged at 0% and the rate on deposits at -0.5%. The main intrigue will be the speech of ECB's head, Christine Lagarde, as the representatives of the ECB have repeatedly hinted at the need to change the monetary policy, since the instrument of negative interest rates has already exhausted itself, and its effectiveness is questionable.
Thus, we are carefully listening to Christine Lagarde's speech at 12:30 (Universal time). Any hints about a change in monetary policy or further inaction of the regulator may lead to market surges.
In terms of statistics, claims for unemployment benefits in the United States will be published today, where another volume reduction is predicted.
Initial applications can be reduced from 881,000 to 846,000.
Re-applications can be reduced from 13,254,000 to 12,925,000.
The recovery of the labor market directly affects the stability of dollar positions.
Further development
Analyzing the current trading chart, we see price fluctuations along the level of 1.1800, which is a temporary phenomenon until the news and information background is released. The error of deviation from the 1.1800 level is 50 points on both sides, thus the most optimal coordinates for actions are the values 1.1750 and 1.1850.
Based on the above information, we will display trading recommendations:
- Consider sell deals below 1.1750, with the prospect of moving 1.1700.
- Consider buy deals above 1.1865, with the prospect of moving to 1.1910.
Indicator analysis
Analyzing different sectors of time frames (TF), we see that the indicators of technical instruments on minute intervals have a variable signal due to price fluctuations at the level of 1.1800. On the other hand, hourly periods signal a buy due to the stage of pullback from the local low on August 21, while daily period signals a sell, reflecting the scale of the correction from the psychological level of 1.2000.
Weekly volatility / Volatility measurement: Month; Quarter; Year
Measurement of volatility reflects the average daily fluctuation, calculated per Month / Quarter / Year.
(It was built considering the time of publication of the article)
The volatility of the current time is 37 points, which is 55% below the average. Due to the strong information and news background, a surge in speculation is expected, which will lead to a volatility increase.
Key levels
Resistance zones: 1.1800; 1.1910 **; 1.2000 ***; 1.2100 *; 1.2450 **; 1.2550; 1.2825.
Support zones: 1.1800; 1.1650 *; 1.1500; 1.1350; 1.1250 *; 1.1180 **; 1.1080; 1.1000 ***.
* Periodic level
** Range level
*** Psychological level
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