FX.co ★ Analysis of EUR/USD and GBP/USD for May 29. Demand for the dollar falls due to tensions between US and China

EUR / USD

On May 28, the EUR/USD pair gained about 70 more basis points and, thus, continues to build the estimated wave 3 in 3 in C in B of the upward trend section. If this is true, then the increase in quotes will continue with targets located near the levels of 127.2% and 161.8% Fibonacci. An unsuccessful attempt to break through the 100.0% level may lead to quotes moving away from the highs reached.

Fundamental component:

On Thursday, markets finally waited for economic information. It came from America and investors are very much disappointed in the dollar. It turned out that the rate of decline in GDP is accelerating and, if a decline of 4.8% was expected earlier in the first quarter, now it is already 5.0% and this is also not a final estimate. That is, the final drop in GDP in the first quarter may be even stronger. The report on orders for durable goods, which also declined by record figures, from 7.4% to 17.2%, depending on the categories of goods taken into account, was not pleased with anything. The number of new initial applications for unemployment benefits in the United States increased by 2.1 million per week, but finally began to decline the rate of secondary applications, which is now 21 million. Thus, the decline in demand for US currency was the logical conclusion of yesterday. At the same time, markets are watching carefully the development of the conflict between America and China. Let me remind you that there are already several stumbling blocks between the two largest economies in the world. This is the coronavirus pandemic, in which Washington blames China and intends to receive compensation or introduce new sanctions, fines, restrictions, even up to the arrest of Chinese property in the country. This is Hong Kong, whose influence Beijing wants to strengthen through a new law on "national security." Washington and other countries of the world, including the European Union, Canada, Great Britain and Australia, condemn the actions of the Chinese government, since Hong Kong is considered the world financial center, has a lot of trade preferences and, accordingly, if it ceases to be autonomous from China, then its attractiveness will plummet for international investors. Thus, the confrontation between China and the United States continues, and it clearly does not benefit the US currency.

General conclusions and recommendations:

The euro/dollar pair presumably continues to build the upward wave C in B. Thus, I recommend buying the instrument with targets located near the calculated levels of 1.1260 and 1.1406, which equates to 127.2% and 161.8% Fibonacci for each new signal "up" MACD. The peak of wave 1 has been updated, and a successful attempt to break through the level of 1.1149 will help the euro to continue to increase, and unsuccessful attempt will lead the quotes to move away from the highs reached.

GBP / USD

On May 28, the GBP/USD pair gained about 60 basis points and, thus, returned to the level of 23.6% Fibonacci. The construction of the proposed wave 3 or C is postponed once again, and the wave marking itself can take a more complex form. In particular, the internal structure of wave 2 or B can become much more complicated, which can take a 5-wave horizontal form. A successful attempt to break the low waves within 2 or B will indicate the need for adjustments to the wave counting.

Fundamental component:

There was still no news background in the UK on Thursday. Therefore, the attention of the markets was still drawn to the events in the USA and China, which are seriously preparing for the Cold War. There will be no reports again in the UK today, but several will be released in the USA. In particular, the change in income and expenditure of Americans in April. The forecasts are disappointing, negative 6.5% for the first report, and negative 12.6% for the second. Thus, the demand for the US dollar may remain low today.

General conclusions and recommendations:

The pound/dollar pair supposedly completed the construction of the second wave of a new upward trend section. Thus, I now recommend buying a pound with targets located around 26 and 27 figures, based on the construction of wave 3 or C or wave d in 2 or B (if the wave becomes more complicated) for each new MACD signal "up". On the contrary, a successful attempt to break through the level of 1.2645 will allow you to buy the pound more confidently.