FX.co ★ EUR/USD. High-profile FinCEN investigation has reached the currency market

The trading week began with increased volatility: the "coronavirus factor" and the leaked FinCEN documents made traders nervous, causing major currency pairs to show high price fluctuations. In turn, the dollar benefitted from this situation, which rose in price throughout the market. It even won the battle with the yen, which traditionally enjoys the status of a defensive asset: USD/JPY pair surged almost to the borders of the 105th figure after an impulse decline to 104.01.

Moreover, the dollar absolutely dominated in a pair with the euro, as the single currency came under the verbal pressure of the head of the ECB, who criticized the exchange rate of the euro and pessimistically assessed the dynamics of the recovery process of the European economy. As a result, the bears of the EUR/USD pair lowered the price to the support level 1.1730 (the upper border of the Kumo cloud on the daily chart), but have not yet been able to break through this target to continue to the next support level 1.1600 (the lower border of the above cloud at the same time frame).

As for the coronavirus factor, everything is pretty much clear here. In view of a gradual decline in the spread of COVID-19 in the US, the rest of the world is showing the opposite trend. This includes Europe, where many countries are forced to tighten quarantine measures. The daily cases in some EU countries are increasing again and this fact worries not only doctors, but also market participants. Against this background, the head of the ECB Christine Lagarde only increased the pressure on the euro, and, accordingly, on the EUR/USD pair.

In turn, the US dollar is in demand again. It can be concluded that without any macroeconomic or political factors, the market viewed it as a defensive asset, which has not been observed since this spring. Here, it is worth noting that the surge in anti-risk sentiment was caused not only by the coronavirus, but also by the high-profile controversy associated with the leak of FinCEN documents to the press.

Let me remind you that FinCEN is a special unit to fight financial crimes, which is part of the US Treasury Department. However, a high-profile document was revealed that a large-scale investigation was being conducted against the largest banking institutions and conglomerates. According to published data, the world's famous banks allowed corrupt businessmen to systematically launder money and avoid sanctions. The investigation mentions such market giants as HSBC, Deutsche Bank, Standard Chartered, JPMorgan, Commerzbank, and Barclays. The reaction of investors was not long in coming. In particular, after the documents were released, shares of HSBC in Hong Kong and Standard Chartered's in London fell to their lowest level in 22 years. According to FinCEN, HSBC allowed fraudsters to move tens of millions of "laundered" dollars around the world-even after learning from us investigators that the scheme was a fraud. In turn, Standard Chartered shares increased by more than 5%. Journalists said that this banking structure transferred cash to an Arab Bank for more than a decade after clients' accounts in a Jordanian Bank were used to finance terrorism.

In general, it was mentioned in the investigation that the banks generally did not file Suspicious Activity Reports (SARs) during the transactions of people with questionable reputation. According to some experts, a high-profile journalistic investigation can lead to billions of dollars in costs for the largest banking structures in the world.

Therefore, this significant background contributes to the development of the downward trend for the EUR/USD pair. The European currency is under pressure from Christine Lagarde's "dovish" rhetoric, while the US currency is in demand amid rising anti-risk sentiment.

Technically, the EUR/USD bears need to break through the support level of 1.1730 (the lower line of the Bollinger Bands indicator, coinciding with the upper border of the Kumo cloud on the daily chart). In this case, the direction to the lower border of the above cloud will be opened to sellers, that is particularly to the psychologically important level of 1.1600. Yesterday, bears failed to break through the target of 1.1730, but buyers could not take the lead either.

This means that the pressure on the EUR/USD pair will increase significantly in the short term. However, it is suggested to consider short positions in the pair only after the indicated support level has been overcome. For today's economic calendar, we practically have none. The only interesting is the speech of the Fed's head, Jerome Powell. However, the rhetoric he will voiced out is just almost the same with his rhetoric following the results of the September meeting of the Fed. Perhaps, he will separately appeal to members of Congress today with a request to continue to provide fiscal support to the economy. However, all previous requests were ignored by the congressmen. Therefore, traders will focus primarily on the general mood of the market in the context of the recent surge in anti-risk sentiment.