The euro-dollar pair is discovering new price ranges, approaching the eighth figure. Bears of EUR/USD were able to overcome the support level of 1.0950 yesterday, which allowed them to continue the downward trend. In addition, the annual low was updated once again, and judging by the dynamics of decline, sellers intend to update the price low of last year (1.0879). In general, this scenario is quite plausible - if Jerome Powell does not announce a rate cut this week, and American inflation comes out at least at the forecast level, then EUR/USD may decline below the low of 2019 by the end of this week.
Moreover, do not forget about the "coronavirus factor", which still maintains the position of the dollar. On the one hand, the Federal Reserve was seriously worried about the possible consequences of the epidemic - the Fed's report published yesterday described an "apocalyptic" scenario that could be realized if the virus spreads further. According to regulator members, the epidemic will lead to the closure of Chinese cities and to a halt in tourism in the country, which will negatively affect the Chinese economy. This fact, in turn, will negatively affect the growth rate of the global economy. The Fed also warned that a significant economic downturn in China could spread to the US and global markets, given the size of the PRC economy. By the way, according to experts interviewed by Global Times, the results of the first quarter of this year showed that imports of American products to China may decline by at least 10 percent (some analysts assume a more significant slowdown, up to 20%).
In theory, such an argument should have frightened dollar bulls - after all, the Federal Reserve can lower the interest rate as a response, despite the growth of key US macro indicators. However, the de facto position of the dollar only strengthened, as it began to be used as a protective asset. At the same time, demand for the American currency increased throughout the market - the dollar index is gradually approaching 99 points, simultaneously updating 4-month highs. Apparently, panic is returning to the currency exchange market, and the dollar is one of the beneficiaries of this situation.
Meanwhile, the death toll from diseases caused by the new coronavirus has already exceeded one thousand. The number of infected is tens of thousands. Each day, both indicators are growing, putting significant pressure on the financial world. The Chinese authorities are only triggering interest in anti-risk assets, despite their assurances that the situation is under control. Thus, the head of the Shanghai Public Affairs Bureau said yesterday that there is no exact data at the moment regarding the transmission methods of the new coronavirus. But at the same time, suspicions are growing that 2019-nCoV is capable of being transmitted by airborne droplets. This means that the virus combines with droplets of moisture in the air, forming aerosols, and inhalation of such mixtures leads to infection. Given the fact that at the moment there is no vaccine or medicine for the new scourge, traders took the information "to heart", after which the demand for the dollar increased again.
In turn, the published Fed report did not alarm dollar bulls. If we exclude the mention of coronavirus, then the published report is quite positive. Fed members noted the growth of the US economy and the easing of tension in the trade sector. Moreover, key economic indicators "indicate the presence of stabilization signals", determining a wait-and-see attitude towards monetary policy. According to the general opinion of the members of the Federal Reserve, the interest rate will remain at the current level, and only "unforeseen events" will force them to soften the terms of the monetary policy. Of course, commenting on the text of the report, Powell can rank the coronavirus factor today as "unforeseen events" thereby hinting at a possible rate reduction in the near future. In this case, the dollar can temporarily lose its position - but only temporarily.
From the point of view of technology, the pair is currently under significant pressure, and almost all the "upper" time frames. On charts H4, D1 and W1, the pair is on the lower line of the Bollinger Bands indicator, which also indicates the priority of the downward movement. At the same time, the pair shows a pronounced bearish trend, which is confirmed by the main trend indicators - Bollinger Bands and Ichimoku, which formed the strongest bearish signal "Parade of Lines" on all the above time frames - all indicator lines are above the price chart, thereby demonstrating pressure on the pair. Therefore, to determine the main goal of the downward movement, let's move on to the monthly timeframe: here, we focus on the lower line of Bollinger Band which is the price of 1.0810.