Yesterday, trading on the main currency pair EUR/USD was multidirectional. The reason for this was the comments of senior monetary officials of the European Central Bank (ECB) and the Federal Reserve System (FRS), as well as macroeconomic indicators. As usual, technical factors played a significant role, and we will pay special attention to them.
So, the focus of market participants is still waiting for the COVID-19 vaccine to appear, as well as the adoption of a new incentive program in the United States. Moreover, it is the adoption of a stimulus package for the world's leading economy that is at the forefront. As it became known yesterday, the producer price index rose more than expectations, which were reduced to 0.2%, and producer prices rose by 0.4%. At the same time, the base value of the index was better than the forecast of 0.9% and came out at the level of 1.2%. This factor once again confirms that the US economy, despite the negative impact of the COVID-19 pandemic, retains a fairly good potential for a gradual recovery, which we are observing.
Nevertheless, Fed officials continue to make comments that the recovery will be long, and the current low-interest rates will remain for a long time. In particular, the President of the Federal Reserve of Richmond, Thomas Barkin, said yesterday that the Federal Reserve will keep rates at low levels until there is a jump in inflation to the target level and above. Regarding unemployment, the chief banker of Richmond expressed the opinion that the reduction in its level is held back by the activity of the female population of the United States, thus, the decline in the unemployment rate may be stalled for some time. As for the crisis in the banking system, Thomas Barkin believes that there are no prerequisites for it yet.
Also speaking yesterday, Fed Vice Chairman Richard Clarida noted that it will take about a year for US GDP to return to pre-pandemic indicators, however, it may take a longer period to achieve full employment, which was before the start of the coronavirus epidemic.
The ECB representative Yves Mersch also made comments yesterday, according to which a new approach to inflation indicators is needed, that is, a revision of the target inflation rate. In other words, Mersch suggests following in the footsteps of the Fed, which has already announced a change in its approach to the inflationary component, as well as unemployment. This is not surprising. All the world's leading central banks repeat the Fed's steps in their monetary policy.
Today, at 13:30 (London time), data is expected to be published from the United States on initial applications for unemployment benefits, as well as the Philadelphia Federal Reserve's manufacturing index. Another speech by ECB President Christine Lagarde is scheduled for 17:00 (London time).
Daily
As a result of yesterday's multidirectional movements, a doji candle appeared on the daily chart of EUR/USD, which has a very important essence. Let's figure it out. The initial and fairly steady decline was stopped by the strong support zone of 1.1725-1.1700, which was mentioned more than once in previous articles on EUR/USD. The pair found strong support at 1.1720 and started an active recovery, which reached 1.1770. In yesterday's review, this option was assumed and a rollback to the Tenkan and Kijun lines of the Ichimoku indicator broken the day before. Here, the quote met resistance and rolled back, ending trading at 1.1744. Thus, yesterday's options for trading recommendations were confirmed. The inability of the bears to push through the important support zone of 1.1725-1.1700 for the pair and the appearance of the doji candle with equidistant shadows again led to the relevance of the upward scenario, which was mentioned at the beginning of the current five-day trading period.
I believe that today will be extremely important for the results of weekly trading. If the euro/dollar shows growth, thus confirming yesterday's reversal candle signal, there is a high probability of rising to the resistance of sellers at 1.1830 and breaking this mark. If bearish pressure resumes, yesterday's lows are restored, and trading closes below the most important level of 1.1700, the further downward scenario for EUR/USD will be most relevant.
Given the fact that the players on the downside failed to push support in the area of 1.1725-1.1700 and the appearance of a doji reversal candle, we can expect growth and prepare for purchases from current prices or after a decline to 1.1725. At the same time, we can not completely exclude the possibility of a decline in the pair, which means its sales. I suggest that you take a closer look at the opening of short positions after the price rises to the area of 1.1760 and the appearance of bearish candlesticks. We must admit that in general, the technical picture for EUR/USD is uncertain, thus, it is quite difficult to give unambiguous trading recommendations. For those who do not want to take risks, it is better to stay out of the market until the situation is clarified.