4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - sideways.
Moving average (20; smoothed) - sideways.
CCI: -158.2454
On Friday, May 15, the EUR/USD currency pair starts with a continuation of the downward movement within the side channel. However, the pair's movements for several days in a row do not resemble movements between the borders of the channel with a width of 250 points, but "swings" in the range of 120 points. The pair's quotes are once again approaching the lower line of the channel near the Murray level of "0/8"-1.0742, however, there is also a minimum from April 6 – 1.0768, from which the pair has already bounced several times. Also, traders should take into account the possible flat channel of 1.0777-1.0897. Thus, there are several strong support levels located at the bottom, which must be overcome to continue the downward movement.
Yesterday was interesting for traders only because of one macroeconomic report. In the United States, another report on applications for unemployment benefits was published, which showed another increase of several million (3 million). Thus, over the past 8 weeks, a total of 36.5 million Americans have filed initial applications for benefits. Many experts believe that the indicator of secondary applications for benefits more accurately reflects the current unemployment rate. According to this indicator, as of May 1, the total number of repeat applications is 22.833 million (the forecast was 25.1 million). Thus, if we look at the second indicator, it turned out to be even better than the forecasts, but when we are talking about 25-35 million people who lost their jobs in just two months, we can hardly say that the indicator is "optimistic" or "positive". Rather, the expression "not as bad as expected" is appropriate.
Meanwhile, passions between China and the US continue to heat up. It is difficult to say who is to blame in this situation, however, it is from the United States that information continues to arrive daily that Washington may impose sanctions, may start a new trade war, may completely terminate business relations with Beijing. Yes, it was the last phrase that was uttered not later than yesterday, from the American President Donald Trump. "We could do a lot of things. We could have ended the relationship completely. If you did, what would happen? You would save $ 500 billion," Donald Trump said during another interview. Also, the American President again stressed that he is very disappointed in China because of the situation with the "coronavirus". "I made a great trade deal with China. But then (in January) no one understood anything. I am very disappointed in China. We have a lot of information and some of it is unfavorable. Whether the virus came from the lab or bats, it was still spreading from China, and they had to stop it. They had to stop it at the source of distribution," Trump summed up. The US President also commented on the bill, which was presented by Senator Lindsey Graham, which implies the introduction of sanctions and restrictions on China if within 60 days Beijing does not provide a full report on what happened in Wuhan. Trump said: "I will be ready to consider this bill."
Also, the media got information that China is very dissatisfied with the United States and is preparing to respond with "painful countermeasures" if Washington still imposes sanctions. However, by "painful countermeasures", Beijing still understands only sanctions against several members of the US government and several American organizations. There is no talk of imposing proportionate sanctions yet. However, at the same time, we are all used to the fact that official Beijing is extremely taciturn and rarely "responds" to Washington. At the same time, there is no doubt that if the entire list of measures from the "Graham law" is applied, then China will respond with mirror measures. In general, the world is on the threshold of new trade and economic confrontation, which may cause an additional blow to the economy, which has not yet recovered but continues to decline due to the COVID-2019 epidemic.
In general, the situation is heating up and now everything will depend on the American leader. If it believes that China is to blame and imposes sanctions/duties/restrictions against it, the world will see a new confrontation between the two giants. And since the coronavirus crisis is not over yet, a new Beijing-Washington conflict could further slow the global economic recovery. The question is, does this make sense for Donald Trump and the US? From our point of view, it makes sense for Trump, but not for the United States. The American President needs to win the presidential race this November and, as a true businessman, he will do everything possible to get ahead of Joe Biden. Trump needs to make China look guilty, cover up their own mistakes and miscalculations. And then everything will depend on American voters. If they believe that Trump is not to blame for the current crisis, for more than 80,000 deaths from the pandemic, and in principle want this conflicted and odious leader to rule the country, then he will be re-elected. If not, then Trump is still not risking anything. He needs to go all-in, and that's probably what he'll do.
Several macroeconomic publications are planned for today. And we will not start with the EU or the US, but with China. Industrial production in China by the end of April may grow by 1.5% in annual terms, which will mean the beginning of the recovery of the Chinese economy. Thus, now the gap between the United States and China will begin to widen and not in favor of Washington. In China, the epidemic was localized very quickly and with relatively small losses. Now the Chinese economy is starting to recover. In Europe and the US, this is not even a dream yet. In Germany, GDP for the first quarter will be published today, which will decline by 2.2% compared to the fourth quarter of the previous year according to experts' forecasts. However, this is only a preliminary value. The EU will also release GDP for the first quarter in an inconclusive estimate, which may be -3.8% q/q and -3.3% y/y. From overseas, data will be received on retail sales for April (forecast -10% m/m), as well as on industrial production for April (-11.5% m/m). The Michigan Institute's consumer confidence index will continue to decline in May and reach 68. Thus, both European and American statistics are likely to disappoint traders equally, so neither the dollar nor the euro currency will have a fundamental advantage.
The average volatility of the euro/dollar currency pair as of May 15 is 70 points. Thus, the value of the indicator remains stable and is characterized as "average". Today, we expect quotes to move between the levels of 1.0711 and 1.0851. The upward turn of the Heiken Ashi indicator may signal a new round of upward movement within the 1.0750-1.1000 channel but within the 1.0777-1.0897 channel.
Nearest support levels:
S1 – 1.0742
S2 – 1.0681
S3 – 1.0620
Nearest resistance levels:
R1 – 1.0803
R2 – 1.0864
R3 – 1.0925
Trading recommendations:
The EUR/USD pair continues to be located below the moving average, so short positions are formally relevant at the moment. However, we are increasingly inclined to believe that the pair is flat. Thus, it is best to start trading down if the lower limits of both side channels (1.0777 and 1.0750) are overcome. The goals, in this case, are the levels of 1.0711 and 1.0681. It is also recommended to consider buying the euro/dollar pair after the quotes exit from the side channel, that is, above 1.0897 with the goal of the Murray level of "4/8"-1.0986.
