Technical analysis and trading recommendations for the EUR / USD currency pair as of May 18, 2018

In the previous review, we discussed that the "bearish" interest is preserved and the quotation managed to overcome the local minimum from May 9 (1.1821), then after it, working out, according to the principle, the breakout breakdown. Now, we see how it gradually falls below our previously formed breakdown of 1.1762, while maintaining a "bearish" interest. It is possible to assume that the quotation will continue to show a downward mood, where the "last" hope of buyers remains the range level of 1.1700 / 1.1650.

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Trading plan for the US session on May 18 EUR / USD

To open long positions for EUR / USD, you need:

To buy the euro in the second half of the day, it is best to return after updating the lows of the month around 1.1765 and forming a false breakdown there, or to rebound from the support level of 1.1745. The main task of buyers will be to return to the resistance level of 1.1808, which will allow us to expect a larger upward correction to the area of 1.1805.

To open short positions for EUR / USD, you need:

While the trade is below 1.1808, the pressure on the euro will continue, and an unsuccessful attempt to consolidate above this range will serve as a good signal for the opening of short positions, with a view to reducing the month to the low of 1.1765 and updating it in areas 1.1742 and 1.1710, where I recommend fixing the profits. Otherwise, you can sell the euro on a rebound from 1.1850.

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Description of indicators

MA (average sliding) 50 days - yellow

MA (average sliding) 30 days - green

MACD: fast EMA 12, slow EMA 26, SMA

Bollinger Bands 20

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Trading plan for the US session on May 18 GBP / USD

To open long positions for GBP / USD, you need:

Consider buying pound is best after updating the lower boundary of the side channel in the area of 1.3454 or after returning and fixing at morning resistance level of 1.3523, which opens a direct road to the upper boundary of 1.3563, where I recommend fixing the profits.

To open short positions for GBP / USD, you need:

While the trade is below the morning resistance level of 1.3523, the pressure on the pound will be maintained, which will lead to the support of 1.3454, and then to the descent into the region of new lows of 1.3410 and 1.3366, where I recommend fixing the profits. In the case of a GBP / USD return to the resistance level of 1.3523, pound sales are best sought for a rebound from 1.3563 area.

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Description of indicators

MA (average sliding) 50 days - yellow

MA (average sliding) 30 days - green

MACD: fast EMA 12, slow EMA 26, SMA

Bollinger Bands 20

The material has been provided by InstaForex Company - www.instaforex.com

Euro received a black mark from Italy

The growth in yields on Treasury bonds, impressed by the strong statistics on US retail sales, the slowdown of the European economy led by Germany in the first quarter and the escalation of political risks after the creation of the coalition in Italy have become the catalysts for the EUR / USD collapse to the lowest level since December. Euro at the end of spring lost all key drivers, which allowed it to strengthen in 2017 against the US dollar by 14%. Then it was about the rapid growth of the European economy, rumors about the normalization of monetary policy, the defeat of eurosceptics in the Netherlands and France, as well as the inflow of capital into the financial markets of the Old World. About a year after the victory of Emmanuel Macron in the presidential election, EUR / USD traded 10 figures higher, but the situation is more like the beginning of 2017. This means that the risks of correction are growing.

Italy, with its unexpectedly formed coalition of "Five Star" and the League has become the catalyst for the collapse of the euro. In the tabloids, there was information that in the preliminary agreement between the parties there was a specific mechanism for leaving the republic from the eurozone and returning to its currency sovereignty. In addition, Rome was going to ask the ECB to write off debts worth € 250 billion. The European Central Bank purchased Italian bonds in the QE implementation process, and the coalition allegedly would refuse to repay them. In the document presented to the general public, these provisions were not found, but the emphasis of the future government on tax cuts and expansion of social spending indicates that it was decided to disregard the methods of fiscal consolidation in favor of economic growth.

Uncertainty about the integrity of the euro area and the violation of EU principles contributes to the flight of capital from the Italian securities markets. The yield of local bonds is growing, their differentials with German counterparts are expanding, which, on the one hand, indicates an increase in political risks, on the other, pushes the quotes of EUR / USD to the south.

Dynamics of EUR / USD and yield differentials of bonds between Italy and Germany

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Everyone perfectly remembers the turmoil that rumors of a large-scale trade war brought to the market. The eurozone with its more than 40% share of exports to GDP is much more sensitive to them than the US and China, which have half the figures. Thus, the escalation of political risks in Italy could change the ECB's planned economic recovery times for the currency block and move the date of completion of the QE and raising the rates for a later period. The Fed, on the contrary, intends to aggressively tighten monetary and credit policy. This is evidenced by an increase in the probability of four increases in the federal funds rate in 2018 from 39% to 52%. The divergence is a powerful trump card in the hands of the "bears" in EUR / USD.

Technically continues the implementation of the pattern "Crab" with a target of 161.8%. It corresponds to 1.15. A necessary condition for the continuation of the southern campaign is a successful assault on 1.176 (78.6% Fibonacci of the last ascending wave).

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Wave analysis of the USD / JPY currency pair for May 18, 2018

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Analysis of wave counting:

In general, it is expected that during the yesterday's trading, the currency pair USD / JPY continued to develop the upward movement and stopped at the level of 110.85 in the afternoon. Thus, we can assume that the currency pair remained in the formation stage somewhat complicating its wave structure of the wave 5, a, 4, C, C, (B). If this is so, then working off the level of the 111th figure can lead to a price turn against the dollar and the beginning of the formation of the future wave b, 4, C, C, (B).

The objectives for the option with purchases:

111.00

111.59 - 76.4% of Fibonacci

The objectives for the option with sales:

109.18 - 50.0% of Fibonacci

108.10 - 38.2% of Fibonacci

General conclusions and trading recommendations:

The upward wave 4, C, C, (B) continues its construction, complicating the internal wave structure. Thus, I recommend buying a pair with targets that are about 111 figures and an estimated level of 111.59, which is equivalent to 76.4% of Fibonacci. I recommend to go back to sales after the completion of wave 4, which can be determined, for example, on the output of the tool from the upward corridor. The MACD divergence warns of the readiness to build a downward set of waves in the near future.

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