In short, the currency market is currently in a state of complete turmoil. You can't tell by just looking at any time frame of the euro/dollar pair. However, there are a huge number of factors that can or do affect the pair and the mood of traders. Starting with the most banal technical, which we consider the most important in the current conditions. Ending with a whole bunch of fundamental ones. Let's start with the technical one. Even though we expected to see the start of a new upward trend after the price worked out and bounced back from the 50.0% Fibonacci level on the 24-hour timeframe, the current movement in global terms may still be a normal correction. Recall that 50% of the Fibonacci is only half of the last two-month round of the upward movement. Before that, the euro/dollar pair grew for 10 months, during which it gained about 1,700 points. Thus, the current drop in quotes to the level of 61.8% is not just a strong correction against the entire upward trend that began in March last year. Based on this, we still believe that the upward movement can resume at any time. If we consider the entire trend over the past year, at the moment, the bears managed to correct the pair by more than 23.6%, which is very small. Thus, in the long term, the conclusion is extremely simple: the upward trend may be resumed, however, the correction may continue for some time. But when the correction will be completed, the fundamental factors that are currently very confusing should tell us.
Let's start with the fact that now, there are a huge number of factors that can affect the mood of traders. And since there are a lot of traders in the market and not all of them are chasing a profit based on the exchange rate difference, we get a kind of mixed reactions and preferences of completely different groups of traders who react to different factors. Simply put, it is now impossible to make an unambiguous conclusion based on what the pair is moving. Recall that only the last two events in the United States could have a strong impact on the pair. We are talking about Joe Biden's signing of a bill to stimulate the economy, according to which every American will receive $ 1,400, which will be "dropped from a helicopter". And this is another $ 2 trillion that will be injected into the American economy. From our point of view, as soon as this money begins to flow into the economy, the US currency will resume its decline. Perhaps, it has already resumed, since three of the five days of this week ended with an increase. Further, the markets were closely watching the yield of treasuries in the US. We believe that this factor is weak, however, many analysts and experts believe that it has a direct impact on the dollar in recent weeks. Well, maybe that's true. Also, there have been rumors in the United States for several weeks about a sharp jump in inflation in 2021, which will be triggered by the same trillions of dollars that have already been poured into the economy. After all, according to the simplest laws of economics, if there is more money, and the number of goods and services produced does not change, this leads to an increase in prices, which is what the Fed wants to achieve. However, investors fear that inflation will rise much stronger than the 2% that is the Fed's target. And the Fed does not intend to raise the key rate until the economy fully recovers from the crisis. Thus, it will be very difficult to contain inflation if it goes up. Moreover, Jerome Powell has previously said that periods of low inflation will be offset by periods of high inflation. Therefore, there is reason to assume that no one will restrain high inflation in the first months of its existence at all. Naturally, investors are afraid of this and sell off bundles of US treasury bonds, the nominal yield on which is much lower than expected in the long term inflation. This means that the real yield is negative. Therefore, the profitability of these same treasuries is growing. And the increase in profitability is an increase in future spending from the US budget, which is already in deficit. I don't even want to remember about the national debt. We have already said that in the United States, the public debt is treated much more calmly than in Europe. However, this does not mean that money can now be borrowed in any amount and at any interest. So rising bond yields are a headache for the Fed. Consequently, as we said above, the market is now in a nervous state, and it is completely unclear who is reacting to what factors.
It can also be noted that there are problems with vaccination in the European Union at this time. Problems arose from the very beginning, as the European Union did not make the largest orders for the vaccine, then there were problems with supplies. In general, now the EU countries are very far behind the countries where vaccination is carried out at a high rate. For example, the United Kingdom or Israel. Naturally, investors do not like this, since the pace of economic recovery in the European Union may slow down again. From all of the above, it follows that now you need to be extremely careful with opening any positions and pay increased attention to the "technique" since it responds most quickly to changes in the market.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart shows that a new upward trend has formed, but at the moment the price has just entered the Ichimoku cloud. Therefore, at the moment it is too early to talk about the beginning of a full-fledged upward trend, even on a 4-hour timeframe. Nevertheless, on Friday there was a rebound from the critical line, which increases the probability of continued growth of the pair. The first goal is the Senkou Span B line. The further movement of the pair will depend on overcoming or not overcoming this line. We believe that there may be another round of downward correction in the global plan. However, much will also depend on how soon the money from the "plan to save America" begins to flow into the economy.