Hello, traders!
Before proceeding to the analysis of the technical picture for the main currency pair of the Forex market, let's briefly talk about the external background and events that may affect the price dynamics of the euro/dollar.
As you know, the European Union intends to allocate 750 billion euros to support the economy from the negative consequences of COVID-19. Meanwhile, parks and gardens began opening in France last Saturday. Now the French are looking forward to tomorrow when restaurants, bars, and cafes will start working. In general, the restrictions are gradually lifted and Europe is returning to the usual rhythm of life. However, many virologists do not rule out a second wave of coronavirus infection.
Of the main macroeconomic events of this week, it is certainly necessary to highlight Friday's reports on the US labor market. Another important and significant event will be the decision of the European Central Bank (ECB) on rates, as well as a press conference of the head of this department, Christine Lagarde. These and other events will be mentioned in more detail on the day of their release, however, in the meantime, let's move on to the technical picture for the euro/dollar pair and start with the results of the completed month.
Monthly
After the formation of the April candle with a long lower shadow, it became obvious that the market does not want to decline and therefore will grow. This is exactly what happened during May's trading. However, looking at the May candle, we see that there was a serious struggle between the opposing sides and the pair were actively moving in both directions. Still, the bulls won. At the same time, it is worth noting two important points. First, the pair did not reach the previous April lows at 1.0727 and turned on the rise from 1.0766. Second, last month's trading closed above the 23.6 Fibo level from the global decline of 1.2555-1.0636, as well as above the monthly Tenkan line of the Ichimoku indicator. These factors create all the necessary prerequisites for further strengthening of the euro/dollar exchange rate in the area of 1.1200-1.1250. However, these are goals in monthly terms. More urgent and topical options for the price movement of the euro/dollar will be considered at shorter time intervals.
Weekly
Apart from the Japanese yen, all other major currencies strengthened against the US dollar. In particular, the euro/dollar currency pair in question increased by 1.81% over the last spring trading week.
As a result of a powerful upward movement, the pair successfully overcame the important technical and psychological level of 1.1000, the resistance of sellers at 1.1017, the 50 simple moving average at 1.1050, the Kijun line located at 1.1065, and closed the trading of the last week of May within the Ichimoku indicator cloud. At the same time, the highs of the last five-day trading period were shown at 1.144, which is directly below the strong resistance level of 1.146.
The euro bulls failed to close above 1.1100, however, their jump up still looks impressive! Now the most important thing is to stay within the Ichimoku cloud and not fall out of it. It is necessary to raise the rate above 1.1100, update previous highs, and break through the resistance of sellers at 1.1146. If these conditions are met, the next targets for the euro/dollar will be 1.166, 1.1200, and 1.1230. At the first level, the 89 exponential moving average passes, the 1.1200 mark is a fairly strong technical level, and at 1.1230, the upper limit of the weekly Ichimoku cloud passes, the exit from which will finally determine the further bullish prospects of the quote.
To change the current bullish scenario into a bearish player on the decline, it is necessary to lower the rate below 1.1065, 1.1050, 1.1000, and 1.1017. Only after fixing below the last mark, you can expect a subsequent decline in the quote. However, I would like to note that these are very difficult tasks, which look hardly feasible after such strong growth and such a high closing price. However, everything happens in the market, and we have seen more than this.
Daily
But on the daily chart, Friday's candle with a long upper shadow and a closing price below 1.1100 makes you think about the high probability of a corrective pullback, the nearest goal of which may be a broken upper limit of the daily Ichimoku cloud at 1.1065. If the pair returns to the limits of the cloud and becomes fixed in it, the exit from it will have to be recognized as false and prepare for a subsequent decline in the euro/dollar, the goals of which will be 1.1030, 1.1017 and 1.1000.
The bullish scenario will be confirmed and continued only if the euro bulls still have the powder in their flasks and they can absorb the growth of the candle for May 29, along with its long upper shadow. In this case, the pair will go to the goals indicated in the description of the weekly timeframe.
Conclusion and trading recommendations for EUR/USD:
Given the technical picture on the charts discussed in this article, the ascending scenario has every chance of continuing. The main trading idea for the main currency pair is buying, which is better to open after a corrective pullback to the price zone of 1.1070-1.1035. In this case, the pullback should be short-term, and after it, it is desirable to see a reversal bullish candle with a long lower shadow on H4 and (or) H1. If the market situation changes, adjustments will be made in subsequent reviews of the main currency pair.
P.S. At the end of the article, the pair tested the resistance of 1.1144, showing highs of 1.1150, but rolled back and is trading at the moment near 1.1140.
Good luck!