From a comprehensive analysis, we see a significant downward move, which has already led the quote below the psychological mark of 1.1000. Now about the details. After a brief flutter around the levels of 1.1080/1.1180, the downward move resumed, having already an avalanche-like form with a scale of more than 200 points. In fact, the psychological level of 1.1000 in the area where the quote came has become a kind of variable support, but nothing drastic is expected from it since the panic mood is on the side of the US dollar. The factor of fixing positions in the green paper has already been noticed in all markets, investors are running to the dollar, as it was in the period of 2008.
Regarding the theory of downward development, we see that the past five trading days restored the quote by 75% relative to the upward inertia course. If the current mood persists, a descent to the base area of 1.0775 will be inevitable in the near future, followed by a further move to the limits of the lows of 2016. The theory of downward development has already been fulfilled on the pound/dollar currency pair, where we also have historical lows that are already on the threshold.
In terms of volatility, we again record ultra-high indicators that exceed the daily average by 188%. Panic – it is the same, which is supported by a dense speculative interest, which is now earning.
I would like to note that the daily average is now 81 points, which is a very high value, and relatively recently we have seen similar activity on the pound/dollar pair, which is the most volatile in comparison with the euro/dollar.
Volatility details: Monday-155 points; Tuesday-183 points; Wednesday-115 points; Thursday-278 points; Friday-166 points Monday-151 points; Tuesday-234 points. The average daily indicator relative to the volatility dynamics is 81 points (see the volatility table at the end of the article).
Analyzing the past day by the minute, we see that the start of the European session was the beginning in a downward spiral, where the quote worked out the level of 1.1180 and during inertia headed towards the level of 1.0955. After that, there was a slowdown and a pullback to the area of the psychological level of 1.1000.
As discussed in the previous review, traders were actively working on a decline from the level of 1.1180 with a top-up after breaking the mark of 1.1080. The perspective on the existing descent does not end.
Looking at the trading chart in general terms (the daily period), we see that the recovery process relative to the earlier inertia move is already considered a fact. In turn, the downward trend is still the main one in the market.
The news background of the past day had data on retail sales in the United States, where a slowdown is recorded from 5.0% to 4.3%, but it is worth considering that the forecast was for a decline to 2.7%, thus, the current data is not as bad as it could have been. A little later, we published indicators for industrial production, which fell tirelessly for the fifth month in a row, but this time everything changed. The data came out just above zero, but with constant negative indicators, this is a positive factor.
In terms of the general information background, we have a real panic, the coronavirus is found in all US states and all European countries, and the number of infected people in the world is growing unquenchably. According to a new report from S&P Global, the world economy will face a large-scale recession from the developing coronavirus this year.
"The sharp economic downturn created by measures to combat COVID-19 will lead to a global recession this year. Reducing the intensity of capital flows, as well as tightening financial conditions simultaneously with the shock in the oil market will damage the creditworthiness of economic agents," S&P Global said in a report
In turn, US Treasury Secretary Steven Mnuchin, speaking to reporters at the White House, tried to calm the market, saying that there should not be a problem with liquidity since the mechanism is already ready.
"We have clearly heard about liquidity problems. I don't think we will use all this volume, but we have the ability to make sure that the Federal Reserve buys up to 1 trillion commercial securities if necessary. This has already created significant stability in the market today," said Secretary Steven Mnuchin.
Already today, the Vice-President of the European Central Bank, Luis de Guindos, said that the impact of the coronavirus on the economy will be temporary, but may last for weeks or months. The Vice-Chairman also noted that the ECB is ready to take decisive measures if necessary, and the regulator has tools at its disposal that are more effective than conventional monetary policy measures.
Today, in terms of the economic calendar, we had data on inflation in Europe, where the forecast for its slowdown coincided with 1.4%-1.2%. This indicator as inflation raises the risk of a possible reduction in the ECB's refinancing rate. In the afternoon, they will publish indicators for the construction sector of the United States, where everything is not so good. So the number of issued construction permits should decrease by 3.4%, and the volume of construction of new homes should decrease by 4.6%. It is worth noting that if the theory of investors fleeing to the dollar is a fact, then negative macroeconomic indicators for the States will not affect the dynamics of the dollar in any way.
Further development
Analyzing the current trading chart, we see the quote fluctuating within the psychological level of 1.1000, where a peculiar range of 1.0955/1.1045 was formed. In fact, the lower limit is the minimum of the past day and already today the quote tested it, performing testing with surgical precision. This kind of touch confirms the desire of sellers to resume the move, and the value of 1.0955 is not so strong, which actually indicates a speedy breakdown. Downward development is still relevant, and our outlook is at the bottom of February 20.
In terms of emotional mood, we see that even with local stagnation within the control level, the market activity is high, which gives us a speculative mood against the background of market panic.
Detailing every minute the available section of time, we again see that at the start of the European session, there is a jump in activity, directing the quote towards the mark of 1.0955, having about 80 points of the move in three hours. I would like to note that the pattern expressed in activity at the start of the European session has been maintained on the market for a long time, and I advise you to take this point into account in trading.
In turn, traders are waiting for the continuation of the banquet, which will come after fixing the price below 1.0950.
It is likely to assume that the downward mood in the medium term will continue in the market, where if the price is fixed below 1.0950, we will head towards the levels of 1.0850-1.0775.
Based on the above information, we will output trading recommendations:
- Buy positions are considered in terms of local operations if the price is fixed higher than 1.1045, in the direction of 1.1080-1.1150.
- Sell positions will resume when the price is fixed below 1.0950, towards 1.0850.
Indicator analysis
Analyzing different sectors of timeframes (TF), we see that the indicators of technical instruments maintain a downward interest with a sell signal. In turn, the minute intervals work on the current chatter within the level of 1.1000.
Volatility for the week / Measurement of volatility: Month; Quarter; Year.
The volatility measurement reflects the average daily fluctuation from the calculation for the Month / Quarter / Year.
(March 18 was based on the time of publication of the article)
The volatility of the current time is 189 points, which is already 11% higher than the daily average. It is likely to assume that the external background will continue to put pressure on the market, maintaining increased activity that will attract speculators.
Key levels
Resistance zones: 1.1080**; 1.1180; 1.1300; 1.1440; 1.1550; 1.1650*; 1.1720**; 1.1850**; 1.2100.
Support zones: 1.1000***; 1.0950; 1.0850**; 1.0775*; 1.0700; 1.0500***; 1.0350**; 1.0000***.
* Periodic level
** Range level
*** Psychological level
