EUR/USD. Take-off aborted: the pair retreated, but going into sales is still risky

After a rapid take-off, the European currency began to gradually lose the points it won. This trend applies not only to the EUR/USD pair: in all cross-pairs, the euro to one degree or another demonstrates weakness. This suggests that the decrease in EUR/USD is not due to the restoration of the greenback - the role of the first violin is played by the single currency. By and large, the corrective pullback has been brewing for a long time: firstly, the price has shown almost growth that has not retreated since February 21, and gaining a half more than 400 points. Secondly, the eurozone does not have immunity from the coronavirus, therefore the problems that other countries of the world have encountered are also common to European states. Italy is now one of the three most epidemiologically disadvantaged countries in the world, along with Iran and South Korea. In Europe, Italians lead in both the number of infected COVID-19 (over 2.5 thousand) and the number of deaths (79 cases). The Italian government decided to close all schools and universities in the country, and many public events were canceled.


It is obvious that the European currency can not behave in isolation under such circumstances. Over the previous weeks, the EUR/USD pair has become more expensive due to a certain uncorrelation: representatives of the Federal Reserve prepared the market for a rate cut, while ECB members remained calm and did not rush to any conclusions. Moreover, some officials of the European Central Bank insisted that such situations should be "resolved" not with the help of monetary policy, but with the help of financial policy. At the same time, members of the Fed increasingly talked about the need to ease monetary policy. This verbal uncorrelation provided strong support for the pair. But now, after the Fed has had its say, the market is wondering whether the ECB will become the next regulator to resort to protective measures. Yesterday, interest rates were lowered by the Reserve Bank of Australia and the Federal reserve, today by the Bank of Canada (also by 50 basis points), and next in line are the Bank of Japan and the Reserve Bank of New Zealand.

Whether the ECB will stay on the sidelines is an open question. On the one hand, there is a certain split in the ECB's camp: some members of the regulator have often criticized the ultra-soft conditions of monetary policy since the autumn of last year, pointing out its side effects. But it is worth considering that in there was also no unanimity in the Fed's camp during the "peacetime" – some were in favor of lowering the rate, while others were in favor of maintaining a wait-and-see position. Some of them even demanded to raise the rate by the end of this year. In other words, the Fed had a full range of opinions, but the 50-point rate cut was voted for unanimously yesterday. In the light of these events, it has been suggested that ECB members will also "bury the hatchet" if necessary and make a consolidated decision.

Today it became known that members of the European regulator held a meeting via conference video link, where they discussed yesterday's decision of the Fed and the general situation in the world and in the eurozone. According to the Reuters news agency, the parties did not come to a single decision based on the results of this "online meeting". At the same time, informed sources stressed that the issue of responding to the consequences of the virus with the help of monetary policy was not on the agenda. Meanwhile, ECB representatives declined to comment on the results of these negotiations. Therefore, traders were left alone with market rumors, which, as we know, do not always correspond to reality.

In addition, EUR/USD traders were not very pleased with the findings of the European Commission, whose members assessed the current situation. In their opinion, the consequences of the epidemic will be "more tangible" relative to earlier forecasts. In view of this fact, the European Commission may revise its economic forecasts in the direction of deterioration. For example, in Brussels today it was suggested that Italy and France might face a technical recession this year.

Against the background of such prospects, the European currency plunged throughout the market, including paired with the dollar. The EUR/USD pair updated the daily low, dropping to around 1.1096. But in the end, the pair stayed within the 11th figure, confirming the riskiness of short positions.

In my opinion, the euro this time will hold back the blow: while the ECB does not openly announce the easing of monetary policy parameters, the pair will demonstrate a bullish mood, primarily due to the vulnerability of the US currency. Moreover, according to some experts, the ECB has a priori fewer opportunities to neutralize the economic consequences of coronavirus than the Fed. Therefore, the market still expects further steps to reduce the interest rate from the Fed (Trump has already urged Powell not to stop there), and any hints in this context will increase pressure on the dollar.


From the technical point of view, the EUR/USD bulls need to stay above the 1.1090-1.1110 price range (the lower and upper boundaries of the Kumo cloud on the daily chart). The resistance level (the goal of the upward movement) is still the 1.1240 mark - this is the upper line of the Bollinger Bands indicator on the daily chart. If members of the Fed will continue to maintain a dovish attitude, the pair can test this target as early as this week.

The material has been provided by InstaForex Company -