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The US dollar has been declining since last fall, so as a result, the EUR / USD pair increased by 700 pips (6%), while the GBP / USD pair grew by 1,000 pips (8%).
Accordingly, the USD index dropped by more than 13%, which was the sharpest decline recorded since 2018.
But with such a massive scale, a pullback should have occurred even once. However, it seems that speculative activity, driven by the COVID-19, Brexit and the recent US elections, did not give an opportunity to turn the market.
Now, the dollar started growing against other currencies, and this is because of the growing yield in US Treasury bonds.
However, its recovery can only amount to 3-5%, therefore, it could not change the medium-term upward trend.
At the same time, the Biden administration may insist on more fiscal stimulus this 2021, which will negatively affect dollar positions.
What happened on the trading charts?
In any case, last week, the rally in EUR / USD halted at 1.2345, after which the euro turned around and traded downwards. The scale is approximately 180 pips.
Clearly, the euro is overbought in the market, while the US dollar is oversold. Taking this into account, sellers still have a chance for a deeper decline.
In terms of market dynamics, there was an acceleration, in which the average daily volatility reached 82 points. It was 18% higher than the average level. This indicates that there is a high chance that speculative activity will play positively on the rebound of the US dollar.
To add to that, a strong bullish move of about 1,700 pips can be seen in the daily chart. Its quote already reached the peak of the medium-term upward trend.
Meanwhile, for the GBP / USD pair, the quote reached 1.3702 on January 1, but after that, it stopped and turned downwards in the chart. It seems that as before, 1.3700 has affected the volume of long positions. Speculators may have been frightened by the level, since within which a trend reversal occurred before.
Anyhow, the scale of the decline is approximately 220 pips, which is considered as the beginning of a large correction.
In terms of market dynamics, there was also an acceleration, in which the average daily volatility reached 114 points.
As for the daily chart, the bullish move was more than 2,200 pips.
In that regard, the euro could remain trading downwards in the market, and its pivot will be 1.2130. If the quote moves even lower, EUR / USD could drop to 1.2000.
If such a scenario happens, the movement could lead to a full-scale correction.
Indicator analysis: all time frames indicate a sell signal, which emerged because of the dollar's rebound in the markets.
At the same time, the pound could also drop to 1.3430, which is its pivot. If GBP / USD moves even lower, the pound may trade at 1.3300-1.3155, repeating the scenario last December.
Indicator analysis: all time frames indicate a sell signal, which emerged because of the dollar's rebound in the markets.
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