Hot forecast and a trading recommendation for EURUSD on 05/07/2020

Let's be honest, the market simply ignored the ADP employment data yesterday. Exactly the same as a month ago. No, there was a reaction, of course, but it can be seen through a magnifying glass. Basically, the market moved while European data was released. And although it looks a little strange, in fact, there is nothing surprising about all this.

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The final data on business activity indices in Europe began the process of weakening the single European currency, because new historical anti-records were recorded. The index of business activity in the service sector literally collapsed from 26.4 to 12.0, and the composite index collapsed from 29.7 to 13.6. Yes, the final data was slightly better than expected. But the differences between the final data and the preliminary assessment are so insignificant that they should not be taken into account. After all, the index of business activity in the services sector was supposed to decrease to 11.4, and the composite index to 13.2. The scale of the decline is already impressive. So, on the whole, the results coincided with the forecasts, and in theory the market generally could not respond to them, since all this had already been done when preliminary data was released. Data on retail sales was posted. The decline was 9.2% at the end of March, which was significantly worse than the forecast of 8.4%. This is the largest decline of all time measuring the pan-European indicator. And the most interesting thing is that restrictive measures began to be introduced only in mid-March. In other words, European retail trade has shown such a massive decline in less than a month. Consequently, the decline will be even more significant in April. And strangely enough, but almost immediately after the publication of these data, the single European currency fell into place. That is, investors played a retail collapse in advance.

Retail Sales (Europe):

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The market actually stood still when the ADP data on employment was published. The fluctuations were so insignificant that it is not worth talking about them. At the same time, employment decreased by 20,236 thousand. This is the largest reduction in employment in the history of such observations. However, as a month ago, there was no reaction. Although such terrifying data was not published last month. The point is that the market as a whole was ready for similar results, since they completely coincide with the logic of regularly published labor market data.

Employment Change from ADP (United States):

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Europe is set to publish an index of business activity in the construction sector today, which is expected to fall from 33.5 to 24.0. This index is insignificant by itself, so the market will simply ignore it.

Construction sector business activity index (Europe):

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The market will focus on the next data on applications for unemployment benefits, which should show a further deterioration in the situation of the US labor market. The number of initial applications will continue to decline for the fifth consecutive week, and their number could reach 3,210,000. However, this is an incredibly large number, since the normal number is something around 200,000. At the same time, the disastrous situation is perfectly demonstrated by repeated applications for unemployment benefits, which should be as much as 20,450 thousand. And this should become another record value. In other words, people don't just lose their jobs en masse, they can't find a new one. And this is the most frightening thing. But the trick is that this is what plays into the dollar's strength. It's just that all this data is published earlier than other countries for the United States. So this example shows what other countries of the world are waiting for. Or more precisely, what is already happening there, but so far, we just don't have accurate data about what is happening. This way, investors are more likely to run from the unknown, even if the risks are high. After all, uncertainty is the worst enemy for the market.

Number of repeated applications for unemployment benefits (United States):

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From the point of view of technical analysis, we see a downward mood, which led the quote to the area of the 1.0775 range, where as a result a local rebound formed with a subsequent slowdown in the range of 1.0790/1.0805. In fact, we saw a consolidation, with which the past day began.

In terms of a general review of the trading chart, the daily period, a significant recovery is recorded relative to the upward measure of last week, which means that the point of variable support will be tested again for strength.

We can assume that the consolidation of 1.0790/1.0805 will not last very long, where with a high degree of probability we will expect another local surge in activity when the price leaves the established framework. Thus, short-term operations work according to the method of breakdown of borders. Basic operations should be considered after consolidating the price lower than 1.0775.

Specifying all of the above into trading signals:

- We consider the buy positions above 1.0805, towards 1.0825.

- We consider selling positions below 1.0790, towards 1.0775.

Further transactions are made after consolidating the price below 1.0770, with the prospect of a move to 1.0730-1.0700.

From the point of view of a comprehensive indicator analysis, we see a persisting sell signal with respect to hourly and daily periods. Minute intervals have a variable signal.

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