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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Claims of Washington and the whole West to China may become the forerunner of eurozone's collapse and Trump's defeat in the

After the optimistic mood of investors in April, which was based on the expectation of a gradual opening of economic activity in Europe and the USA, as well as on the expectations of advancement in the invention of a medicine for COVID-19, May began with a rather slow activity, except for the dynamics in the crude oil market.

Investors actively bought shares of companies in April after a landslide of markets in March, which was explained by expectations that the markets were supposed to have a "V" shaped recovery of the world economy after a gradual weakening of quarantine measures. But by May, these moods were slightly corrected. It became clear that this will most likely not happen, that the global economy is likely to face a "U" shaped recovery. And the reason for this may not be the influence of coronavirus on economic activity, but the beginning of a new company in the United States and its allies with the search for the culprit in this pandemic, the role of which, as expected, was assigned by China.

Threats of new trade duties in the heated trade war initiated by Washington frighten investors, forcing them to recall the events of 2018 and 2019, which led to high volatility in the markets and a drop in risk appetite. We believe that the risk of a new trade escalation in the" ruins " of Europe and the United States after the coronavirus pandemic will cause more significant damage to the economies of both the States themselves and their satellites in Europe. The Desire Of D. Trump to finish off in the economic sense of its main competitor in the face of China can lead to extremely weak rates of recovery of economic activity in the United States and Europe. It may turn out that Washington, wanting to deal with Beijing, saws the branch on which it sits.

This is a very dangerous situation, which could lead to the strengthening of centrifugal forces in Europe, followed by the collapse of the euro area, and America itself may face local manifestations of separatism. This is like a certain kind of Maxim of the likely development of events. If we talk about the smallest possible trends, then the resumption of the US-China trade war in the face of extreme US insecurity from the consequences of COVID-19 may cause Trump to lose in the presidential election.

As for the likely development of events in the near future, given the unexpectedly inappropriate activity of trump, this will cause high volatility in the stock markets, probably the beginning of consolidation in commodity currencies and the weakening of the single currency. The expected decline in the dollar has stalled until there are more compelling reasons to resume risk appetite in the markets.

The quotes of crude oil, as well as industrial goods, after reaching local maximums, will most likely begin to consolidate in anticipation of a response from China to Western claims.

Among the important events today, we single out the publication of data on China's export, import and trade balance, which turned out to be positive overall, except the annual value of imports, which declined by 14.2% against a decrease of 1.0% a year earlier. Today, the market will also focus on the number of initial claims for unemployment benefits in America. An increase of 3 million is expected against 3 million 839 thousand a week earlier.

Given the high importance of the values from the labor market, it can be assumed that if they are slightly below the forecast, this will become some basis for a positive reaction in the markets.

Forecast of the day:

The USD/JPY pair is in a downward trend, but the good data on the Chinese economy released today, as well as a possible decline in the number of applications for unemployment benefits in the United States, can stimulate risk appetite in the markets. This can lead to a rebound of the pair up to 106.85 or even higher to 107.00, but only after breaking through the level of 106.40.

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Gold forms Elliott Wave

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Good afternoon traders! Here is a trading idea for gold.

APD published yesterday its preliminary data on US unemployment, the content of which came out in the framework of forecasts:

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The report pushed the US dollar to rally all afternoon, closing with an "absorption" on the daily chart:

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A short-term initiative was observed during the US session, from which we can continue shorting the pair within the classic ABC structure:

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The idea will be relevant as long as the market is trading below yesterday's levels. Choose the best prices for entering the market, and pay special attention to the US session.

After a break of yesterday's low, positions can be moved to breakeven and take profits at 1670 and 1640.

Good luck in trading and control the risks!

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Fractal analysis of the main currency pairs on May 7

Forecast for May 7:

Analytical review of currency pairs on the scale of H1:

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For the euro / dollar pair, the key levels on the H1 scale are: 1.0900, 1.0870, 1.0852, 1.0818, 1.0792, 1.0771 and 1.0728. Here, we are following the development of the downward cycle of May 1. The continuation of the downward movement is expected after the breakdown of the level of 1.0818. In this case, the target is 1.0792. Price consolidation is in the range of 1.0792 - 1.0771. For the potential value for the bottom, we consider the level of 1.0728. Upon reaching which, we expect an upward pullback.

Correction can be avoided after the breakdown of the level of 1.0824. Here, the first goal is 1.0852. The range of 1.0852 - 1.0870 is the key support for the downward cycle and the price passing this range will lead to the formation of initial conditions for the upward cycle. In this case, the potential target is 1.0900.

The main trend is the downward cycle of May 1.

Trading recommendations:

Buy: 1.0824 Take profit: 1.0850

Buy: 1.0872 Take profit: 1.0900

Sell: 1.0790 Take profit: 1.0772

Sell: 1.0768 Take profit: 1.0730

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For the pound / dollar pair, the key levels on the H1 scale are: 1.2452, 1.2394, 1.2359, 1.2312, 1.2264, 1.2226 and 1.2153. Here, we are following the development of the descending structure of April 30. The continuation of the downward movement is expected after the breakdown of the level of 1.2312. In this case, the target is 1.2264. Price consolidation is in the range of 1.2264 - 1.2226. For the potential value for the bottom, we consider the level of 1.2153. Upon reaching which, we expect an upward pullback.

A short-term upward movement is possible in the range of 1.2359 - 1.2394. The breakdown of the last level will lead to in-depth correction. Here, the target is 1.2452. This level is a key support for the downward structure.

The main trend is the downward cycle of April 30

Trading recommendations:

Buy: 1.2360 Take profit: 1.2392

Buy: 1.2396 Take profit: 1.2450

Sell: 1.2310 Take profit: 1.2265

Sell: 1.2262 Take profit: 1.2228

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For the dollar / franc pair, the key levels on the H1 scale are: 0.9819, 0.9800, 0.9776, 0.9741, 0.9727, 0.9709 and 0.9695. Here, we are following the development of the upward cycle of May 1. The continuation of the upward movement is expected after the breakdown of the level of 0.9776. In this case, the target is 0.9800. Price consolidation is near this level and hence there is a high probability of a correction. For the potential value for the top, we consider the level of 0.9819.

A short-term downward movement is possible in the range of 0.9741 - 0.9727. The breakdown of the last level will lead to an in-depth correction. Here, the target is 0.9709. The range of 0.9709 - 0.9695 is the key support for the upward structure.

The main trend is the upward cycle of May 1

Trading recommendations:

Buy : 0.9776 Take profit: 0.9800

Buy : 0.9802 Take profit: 0.9817

Sell: 0.9740 Take profit: 0.9728

Sell: 0.9725 Take profit: 0.9710

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For the dollar / yen pair, the key levels on the scale are : 106.89, 106.58, 106.42, 106.13, 105.80 and 105.52. Here, we are following the formation of the descending structure of April 30. The continuation of the downward movement is expected after the breakdown of the level of 106.13. In this case, the target is 105.80. Price consolidation is near this level. For the potential value for the bottom, we consider the level of 105.52. Upon reaching which, we expect an upward pullback.

A short-term upward movement is possible in the range of 106.42 - 106.58. The breakdown of the last level will lead to an in-depth correction. Here, the target is 106.89. This level is a key support for the bottom.

The main trend is the downward cycle of April 30

Trading recommendations:

Buy: 106.42 Take profit: 106.57

Buy : 106.60 Take profit: 106.87

Sell: 106.11 Take profit: 105.82

Sell: 105.78 Take profit: 105.54

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For the Canadian dollar / US dollar pair, the key levels on the H1 scale are: 1.4299, 1.4259, 1.4209, 1.4171, 1.4101, 1.4071, 1.4047, 1.3997 and 1.3949. Here, we specified the subsequent goals from the local ascending structure on May 5 (this allows you to most accurately manage short-term operations). Short-term upward movement is expected in the range of 1.4171 - 1.4209. The breakdown of the last level will lead to a pronounced movement. Here, the target is 1.4259. For the potential value for the top, we consider the level of 1.4299. Upon reaching which, we expect consolidation, as well as a downward pullback.

A short-term downward movement is possible in the range of 1.41.01 - 1.4071. The range of 1.4071 - 1.4047 is the key support for the top and the price passing this range will lead to the development of the downward structure. In this case, the first potential target is 1.3997.

The main trend is the local upward structure of May 5

Trading recommendations:

Buy: 1.4171 Take profit: 1.4207

Buy : 1.4211 Take profit: 1.4257

Sell: 1.4100 Take profit: 1.4073

Sell: 1.4045 Take profit: 1.3998

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For the Australian dollar / US dollar pair, the key levels on the H1 scale are : 0.6487, 0.6446, 0.6413, 0.6368, 0.6337, 0.6299, 0.6254 and 0.6224. Here, we are following the development of the descending structure of April 30. Short-term downward movement is expected in the range of 0.6368 - 0.6337. The breakdown of the last level will lead to a movement to the level of 0.6299. We expect consolidation near this level. The breakdown of the level of 0.6297 should be accompanied by a pronounced downward movement. Here, the target is 0.6254. For the potential value for the bottom, we consider the level of 0.6224. Upon reaching which, we expect consolidation, as well as an upward pullback.

A short-term upward movement is expected in the range of 0.6446 - 0.6487. The breakdown of the last level will lead to the formation of initial conditions for the upward cycle. In this case, the potential target is 0.6571.

The main trend is the downward structure of April 30

Trading recommendations:

Buy: 0.6450 Take profit: 0.6486

Buy: 0.6490 Take profit: 0.6530

Sell : 0.6368 Take profit : 0.6338

Sell: 0.6335 Take profit: 0.6300

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For the euro / yen pair, the key levels on the H1 scale are: 115.79, 115.21, 114.92, 114.43, 114.04 and 112.92. Here, we are following the development of the downward cycle of May 1. At the moment, the price is near the limit values, and therefore, there is a high probability of a correction. Short-term downward movement is possible in the range of 114.43 - 114.04, from here we expect a key reversal to the top. The breakdown of the level of 114.04 will be accompanied by an unstable development of the situation. Here, the potential target is 112.92.

A short-term upward movement is possible in the range of 114..92 - 115.21. The breakdown of the last level will lead to an in-depth correction. Here, the target is 115.79. This level is a key support for the downward structure.

The main trend is the downward cycle of May 1

Trading recommendations:

Buy: 114.92 Take profit: 115.20

Buy: 115.24 Take profit: 115.76

Sell: 114.40 Take profit: 114.06

Sell: 113.95 Take profit: 113.50

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For the pound / yen pair, the key levels on the H1 scale are : 132.27, 131.60, 131.22, 130.59, 130.10, 129.46, 128.89. Here, we are following the development of the descending structure of April 30. Short-term downward movement is expected in the range of 130.59 - 130.10. The breakdown of the last level will lead to a pronounced downward movement. Here, the target is 129.46. For the potential value for the bottom, we consider the level of 128.89. Upon reaching which, we expect an upward pullback.

A short-term upward movement, as well as consolidation are possible in the range of 131.22 - 131.60. The breakdown of the last level will lead to in-depth movement. Here, the goal is 132.27. This level is a key support for the downward structure.

The main trend is the downward structure of April 30

Trading recommendations:

Buy: 131.66 Take profit: 132.25

Buy: Take profit:

Sell: 130.59 Take profit: 130.15

Sell: 130.05 Take profit: 129.46

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UK lifts quarantine on Monday

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UK to lift quarantine on Monday, according to Prime Minister Boris Johnson on May 6.

Johnson said in a public statement that he would set out the next phase of government strategy, the reason of which is that it would be "good" for people to understand what to expect before the changes take into effect.

Seven documents were distributed by ministers to firms and enterprises, which contains action guidelines on how to safely resume work. These include social distance measures, as well as more stringent hygiene practices. The scheme to remove quarantine with social distance at workplaces will last until the end of June, after which it will be gradually lifted.

However, the gradual removal of restrictions delivered negative reactions from the Congress of Trade Unions. According to Conservative MP Jane Stevenson, many are "nervous" to return to work.

MP Paul Scully, on the other hand, defended Johnson's proposal, and said that employers and unions will have "many" opportunities to return to quarantine again.

From the very beginning, the quarantine scheme was designed to avoid massive lay-offs of UK workers. Thus, the scheme incorporated the Irish and German's idea to reduce work time everyday. Some Conservatives have suggested to make this scheme semi-permanent. The Kurzarbeit system (short-time working), which was already present for about a hundred years, attributes to the preservation of millions of jobs and pays 60% of wages, untaxed.

The adoption of the scheme grew universal loan applications by 1.8 million during the quarantine period, which helped avoid what economists call "hysteresis," the cutting effect of unemployment on the economy and public finances over the years. Currently, about 6.3 million jobs are paid by the government, accounting for one fourth of the total jobs in the UK.

The scheme is also a good form of employment insurance, operating through the private sector, rather than through the Department of Labor and Pensions. However, this is not part of the treasury plans, as they seek to confirm that support is temporary.

Current situation have caused massive lay-offs in the airline industry, the main reason of which is the lack of demand due to quarantine. Thus, the industry asked for an extension of the scheme until July, or October if possible.

The government is now trying to convey the message that enterprises should not rely too much on this unusual form of financing.

Many options are being discussed, but no clear decisions have been made yet.

Meanwhile, the GBP/USD pair is currently stuck in the channel between 1.21 and 1.26:

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GBP/USD: plan for the European session on May 7. Pound remains under pressure ahead of Bank of England decision on interest

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

The British pound continued to fall against the US dollar yesterday , successfully consolidating in the afternoon below the support of 1.2360, from where I recommended continuing to open short positions. If you look at the 5-minute chart, you can see how after another decline in the pound to the support of 1.2360, there was a breakdown and consolidation below this level, and the bulls failed to go above this range after three attempts. Expectations of gloomy forecasts from the Bank of England on the prospects of the UK economy continue to put pressure on the pound. To smooth the situation, the bulls need to return and consolidate on the resistance of 1.2342, above which the moving averages pass. After this, you can expect a low upward correction of GBP/USD to the highest area of 1.2389, where I recommend taking profits. In case the pound declines further, there is a probability of forming a false breakout in the support area of 1.2300, but it is best to take your time with long positions and wait for the Bank of England's decision on interest rates, as well as the speech of the new governor of the central bank, Andrew Bailey. It is best to open long positions in GBP/USD on a rebound from major lows in the area of 1.2275 and 1.2250, and then count on a correction of no more than 30-35 points within the day.

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

Bears continue to bend their line and there are no signals to end the bearish trend yet. Pressure on the pound continues while trade is below resistance 1.2342, and forming a false breakout in this range, after the publication of the decision on interest rates, will only increase the presence in the market sellers that will push GBP/USD to lows of 1.2300 and 1.2275. However, the long-term goal is still the April 21 low at 1.2250, where I recommend taking profits. In case the pound increases above the resistance of 1.2342, which may happen after the speech of Bank of England Governor Andrew Bailey, or the introduction of new measures to help the UK economy, it is best to return to short positions only after testing the high of 1.2389, or sell GBP/USD immediately on the rebound from a large resistance of 1.2446 based on a decrease of 30-40 points within the day.

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Signals of indicators:

Moving averages

Trading is below 30 and 50 moving averages, which indicates the formation of a bearish momentum.

Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differs from the general definition of the classic daily moving averages on the daily chart D1.

Bollinger bands

If the pound rises in the first half of the day, the upper border of the indicator at 1.2389 will act as resistance. A break of the lower border of the indicator in the region of 1.2300 will increase the pressure on the pair.

Description of indicators

  • Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
  • Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
  • MACD indicator (Moving Average Convergence / Divergence - Moving Average Convergence / Divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
  • Bollinger Bands (Bollinger Bands). Period 20
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Market Review. Trading ideas. Answers on questions

Trading recommendations:

Silver down to 14.5.

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Elliott wave analysis of EUR/GBP for May 7, 2020

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EUR/GBP found a corrective low at 0.8689 as we expected and has started a new clime higher. The first minor hurdle to conquer is seen at 0.8814 and above here will confirm a full test of key resistance at 0.8866, which needs to be broken to finally confirm the corrective decline from 0.9499 has completed and a new impulsive rally to above 0.9499 is in motion.

Short-term we see support at 0.8725 which is expected to protect the downside for the test of 0.8814 and above.

R3: 0.8866

R2: 0.8814

R1: 0.8758

Pivot: 0.8725

S1: 0.8689

S2: 0.8670

S3: 0.8621

Trading recommendation:

We are long EUR from 0.8765 with our stop placed at 0.8670.

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Elliott wave analysis of GBP/JPY for May 7, 2020

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GBP/JPY pushed right through key-support at 131.88. This confirms the corrective peak was seen at 135.75 and the final impulsive decline in the series from 147.95 now is in motion. This final decline should break below 123.99 to fulfill all requirements to the decline from 147.95, but once below 123.99 a long-term bottom should be expected anytime.

Short-term a re-test of the former key support at 131.88 is likely before renewed downside pressure towards 129.85 and 128.55 on the way to below 123.99.

R3: 133.24

R2: 132.74

R1: 131.88

Pivot: 131.19

S1: 130.63

S2: 129.85

S3: 128.55

Trading recommendation:

We sold GBP at 131.87 and we will take half profit here at 130.95 and re-sell GBP at 131.85. For the final 50% we will place our stop at 132.50.

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Technical Analysis of GBP/USD for 07/05/2020:

Technical Market Outlook:

The GBP/USD pair has broken below the short-term trend line support and below the technical support from the level of 1.2406. Please notice, the momentum indicator is now negative, so the sell-off might accelerate towards 1.2246 level. It looks like bulls are not strong enough to push the price above the level of 1.2485 again and the price is consolidating in a narrow zone before the plunge.

Weekly Pivot Points:

WR3 - 1.2909

WR2 - 1.2757

WR1 - 1.2605

Weekly Pivot - 1.2476

WS1 - 1.2324

WS2 - 1.2200

WS3 - 1.2054

Trading Recommendations:

The fear of the coronavirus consequences is very strong among the global investors and it rules on the financial markets. On the GBP/USD pair the main trend is down, but the reversal is possible when the corona virus pandemic will be tamed. The key long-term technical support has been recently violated (1.1983) and the new one is seen at the level of 1.1404. The key long-term technical resistance is seen at the level of 1.3518. Only if one of this levels is clearly violated, the main trend might reverse (1.3518) or accelerate (1.1404). The market might have done a Double Top pattern at the level of 1.2645, so the price might move lower in the longer-term.

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Technical Analysis of EUR/USD for 07/05/2020:

Technical Market Outlook:

The EUR/USD bears have manage to push the prices even deeper towards the level of 1.0782. The target for bears is seen at the level of 1.0779 - 1.0767, which is a key short-term support zone for bulls. If this zone is violated, then the swing lows located at the level of 1.0727 will be tested next. The momentum is now negative, so the odds for another dynamic wave up are decreasing. The nearest technical resistance is seen at the level of 1.0846.

Weekly Pivot Points:

WR3 - 1.1279

WR2 - 1.1141

WR1 - 1.1073

Weekly Pivot - 1.0940

WS1 - 1.0861

WS2 - 1.0728

WS3 - 1.0662

Trading Recommendations:

The fear of the coronavirus consequences is very strong among the global investors and this fear still rules on the financial markets. On the EUR/USD pair the main long term trend is down, but the reversal is possible when the coronavirus pandemic will be tamed. The key long-term technical support is seen at the level of 1.0336 and the key long-term technical resistance is seen at the level of 1.1540. Only if one of this levels is clearly violated, the main trend might reverse (1.1540) or accelerate (1.0336).

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Technical Analysis of ETH/USD for 07/05/2020:

Crypto Industry News:

The Ukrainian Ministry of Energy believes that the use of nuclear power plants to mine cryptocurrencies may be one of the best ways to counteract the current energy stagnation.

According to the statement, local nuclear power plants generated a surplus due to downtime due to COVID-19. Ukrainians now want to apply progressive solutions to avoid wasting energy as part of the government's course towards digitization supported by President Volodymir Zelenski. Leaving the status quo can create:

"[...] conditions for corruption crimes, which will eventually be paid at the expense of Ukrainian citizens," warns the ministry, while pointing out that mining cryptocurrencies may prove to be one of the effective solutions.

The acting head of the Ukrainian Ministry of Energy asked the state-owned enterprise Energoatom to explore potential ways to implement cryptocurrency mining at domestic nuclear power plants by May 8. Power plants were previously used to mine cryptocurrencies, although not on a government scale. A private power plant in the Finger Lakes region of New York switched to Bitcoin mining, adding $ 50,000 BTC per day to daily revenues.

Technical Market Outlook:

The ETH/USD pair has again plunged towards 38% Fibonacci retracement located at the level of $195.94. The short-term trend line support has been violated as well and the price is testing the technical support at the level of $193.78 after another Pin Bar candlestick was made. Nevertheless, the price bounced from lows seen at the level of $193.78 and is currently trying to test the trend line from below. The weak and negative momentum supports the short term outlook towards the next support located at $188.86 or even towards 50% retracement at $186.72.

Weekly Pivot Points:

WR3 - $296.61

WR2 - $243.36

WR1 - $224.05

Weekly Pivot - $205.69

WS1 - $188.49

WS2 - $168.64

WS3 - $150.80

Trading Recommendations:

The fear of the coronavirus consequences is very strong among the global investors and it rules on the financial markets. So far the global investors are not so keen to invest in cryptocurrency, because they are being perceived as risky assets. The larger time frame trend on Ethereum remains down and as long as the level of $288 is not violated, all rallies will be treated as a counter-trend corrective moves. This is why the short positions are now more preferred.

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EUR/USD: plan for the European session on May 7. The European Commission report pulled down the euro, but bulls can return

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

Yesterday I paid attention to the possibility of selling from the resistance of 1.0831, which was not enough to test about 3-4 points. This is clearly visible on the 5-minute chart. The poor report of the European Commission and its forecasts for the future will continue to put pressure on the euro today, but the bulls will try to do everything to prevent a breakout of the low of 1.0787, on which a lot depends. Forming a false breakout at this level in the first half of the day will be a direct signal to open long positions while expecting a repeated return to the resistance of 1.0831 and consolidating on it. After this, you can expect to continue a larger upward correction to the highest area of 1.0882, where I recommend taking profit. I also recommend paying attention to the divergence that is formed on the MACD indicator, which will be an additional confirmation of the bullish correction. If the pressure on the euro persists after the release of fundamental statistics on the eurozone countries, then after the breakout of the support of 1.0787, I recommend postponing long positions to the test of the lows of 1.0755 and 1.0728 and buy EUR/USD from them immediately for a rebound based on a correction of 25-30 points within the day.

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

Sellers are still in full control of the market and are now aiming to return the pair to yesterday's low in the area of 1.0787. A repeated test of this level will lead to a new wave of selling EUR/USD with access to new areas of 1.0755 and 1.0728, where I recommend taking profits. However, a more pleasant gift for the bears will be an upward correction to the resistance area of 1.0831, which may occur today after the release of reports on retail trade volume and the balance of the eurozone countries. Forming a false breakout at this level will signal opening new short positions in the euro with the goal of breaking 1.0787 and updating new weekly lows. If there is no activity from sellers in the area of 1.0831, since an attempt was made yesterday to continue the bearish trend from this level, it is best to abandon short positions until the test of a larger high of 1.0882, where you can sell for a rebound in the expectation of a correction of 30-35 points within the day.

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Signals of indicators:

Moving averages

Trading is below 30 and 50 moving averages, which indicates a bearish sentiment.

Note: The period and prices of moving averages are considered by the author on the hourly chart H1 and differs from the general definition of the classic daily moving averages on the daily chart D1.

Bollinger bands

A break of the upper border of the indicator in the region of 1.0815 may lead to a sharp increase in the euro. A break of the lower border at 1.0787 will increase the pressure on the pair.

Description of indicators

  • Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 50. The graph is marked in yellow.
  • Moving average (moving average determines the current trend by smoothing out volatility and noise). Period 30. The graph is marked in green.
  • MACD indicator (Moving Average Convergence / Divergence - Moving Average Convergence / Divergence) Fast EMA period 12. Slow EMA period 26. SMA period 9
  • Bollinger Bands (Bollinger Bands). Period 20
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Technical Analysis of BTC/USD for 07/05/2020:

Crypto Industry News:

The difficulty of mining Bitcoin, which is a measure of how difficult it is to compete for block prizes, has reached the highest level in the last adjustment of the network before halving occurs. The world's largest blockchain network in terms of market capitalization, corrected the difficulty of mining to 16.10 trillion T, which was close to the record level of 16.5 T, recorded in March this year.

Today's correction, which the difficulty of mining exceeded the threshold of 16 T, is also the final change before halving, which awaits us in less than a week. After halving the rewards, which will also reduce the number of newly extracted Bitcoins per day from 1,800 to 900 units, it is expected that computing power connected to the Bitcoin network will then decrease.

The difficulty of Bitcoin mining is to adapt to 2016 blocks, depending on the competition. If more people are involved in the game, the difficulty level will increase in the next correction. If the computing power is less, the difficulty will decrease.

The difficulty correction follows the rather unusual amount of bitcoin blocks mined at the end of last week, when miners registered 16 blocks in about an hour. Such a fast block production could be a sign that the current level of difficulty was too low. According to the data, the average mixing power connected to the Bitcoin network in the last seven days increased to over 119 EH / s, with the last average of three days oscillating around 125 EH / s.

Technical Market Outlook:

The BTC/USD pair has tested the technical resistance at $9,380, which is the last swing high. Nevertheless, there was a Doji candlestick pattern made at the top of the move. Still the key level of support is still seen at $8,357. Any violation of this level will deepen the correction towards the level of $7,934 which is a key short-term technical support for the price. Weak and negative momentum supports the short-term bearish outlook.

Weekly Pivot Points:

WR3 - $11,425

WR2 - $10,480

WR1 - $9,720

Weekly Pivot - $8,578

WS1 - $7,824

WS2 - $6,750

WS3 - $5,970

Trading Recommendations:

The recent rally in Bitcoin was made in anticipation of Bitcoin halving and it is a classic pump and dump scheme. The larger time frame trend remains down and as long as the level of $10,791 is not violated, all rallies will be treated as a counter-trend corrective moves. This is why the short positions are now more preferred until the level of $10,791 is clearly violated.

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

Important fundamental data expected today

Signals for the EUR/USD pair:

If the pair breaks through at 1.0831, the euro can grow to the area of 1.0882 and 1.0923.

A breakthrough at 1.0787 is likely to lead to a sell-off of the euro at 1.0755 and 1.0728.

Signals for the GBP/USD pair:

If the pair breaks through at 1.2342, the British pound can rise to 1.2389 and 1.2446.

A breakthrough at 1.2300 can lead to a sell-off of the British pound at 1.2275 and 1.2250.

Fundamental data:

Today, the Bank of England will announce its decision on interest rates. Andrew Bailey, Governor of the Bank of England, and Christine Lagarde, President of the European Central Bank, will deliver their speech during the day. Apart from that, initial unemployment claims in the United States will be released today.

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

Forecast for EUR/USD on May 7, 2020

EUR/USD

The euro lost around 70 points as a result of yesterday. This was not prevented by terrible data on job cuts in the private sector in the United States, where, according to ADP estimates, 29.236 million were lost in April. Investors have long adapted to negative employment data and are now optimistic about the future. The European Commission, in its monthly forecast, expressed a forecast for a drop in the economy of the euro area by -7.7% y/y.

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The price is steadily falling to the previously defined target of 1.0595 on the daily chart. All indicators imply a decrease further.

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Indicators on the four-hour chart also imply that prices will continue to fall. The potential for an upward correction is limited by the MACD line in the region of 1.0846. Opening new short positions is possible with breaking the price of the signal level of 1.0782 (yesterday's low).

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GBP/JPY pair to fall by 8 figures.

GBP / JPY

The market is signaling a medium-term decline in the GBP / JPY currency pair.

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The monthly chart of the GBP / JPY pair indicates a turndown of quotes below the balance line, which indicates trend stability. The same can be observed with the Marlin oscillator, which recently entered the downward trend zone in the time frame. The prospect of descent in the oscillator is huge, the stretch of which can even reach into a long-term trend, with a scale of more than six months.

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Quotes are also falling sharply in the weekly chart, just after the reversal from the MACD line a week earlier. The goal of the movement is the price level 122.20 - Fibonacci retracement 361.8%

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Meanwhile, price consolidation was observed in the daily chart, after the previous false price exit above these lines (the pattern strengthens the downward move). The Marlin oscillator also moved to a downward trend zone.

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Downward move also continues in the four-hour chart, with quotes under the indicator lines. Here, the Marlin oscillator is in the zone of negative numbers.

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Forecast for AUD/USD on May 7, 2020

AUD/USD

The aussie fell by 28 points on Wednesday, under the general pressure of the US dollar, and this morning it did not reach the first support of the enclosed price channel line. In general, we do not expect that the divergence on the Marlin Oscillator on the daily chart will be violated and the price will restore a growing trend. To do this, the price will need to overcome the resistance of the upper line at around 0.6508.

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Overcoming the May 4 low (0.6374) opens the immediate goal of 0.6265 - support for the MACD line. Overcoming this support will open the second target of 0.6150 - support of the lower price channel line.

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The price has consolidated below the MACD line on the four-hour scope, the Marlin oscillator is staying in the declining trend zone.

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Forecast for USD/JPY on May 7, 2020

USD/JPY

The US stock index S&P 500 fell by 0.91% on Wednesday, which helped the USD/JPY pair to decline by 48 points. The price did not significantly fall exactly along the 9th Fibonacci time line, but maybe later, or it can be staged in an ongoing trend, as it happened from the 5th time line. The goals of the bears are preserved: 105.10, 103.95, 102.35.

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The price continues to develop under the balance and MACD indicator lines on the four-hour chart, the Marlin oscillator in the zone of negative values. We look forward to continued decline.

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Overview of the GBP/USD pair. May 7. "Funny stories, would you like to hear?" Donald Trump made several new statements.

4-hour timeframe

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Technical details:

Higher linear regression channel: direction - downward.

Lower linear regression channel: direction - downward.

Moving average (20; smoothed) - downward.

CCI: -154.7020

The British pound continues to trade lower this trading week, which fully corresponds to our vision of what is happening. The third trading day of the week ended with a volatility of 115 points, which corresponds to the average value of the indicator. Traders continue to trade calmly, although the news from the UK health sector continues to be disappointing. The total number of deaths from the epidemic in the Foggy Albion exceeded 32,000, which is more than in Italy, Spain, or France. Also, the number of new cases of infection does not decrease. Over the past day, 6,111 new cases of the disease were recorded, which is 2,000 more than the previous day. In total, more than 200,000 cases of the COVID-2019 virus have been recorded in Britain.

The main newsmaker in the world now remains American President Donald Trump. To be honest, we continue to wonder how Trump has enough time to hand out interviews every day and cover almost every possible topic. Although now Trump's rhetoric is just as clear and obvious as ever. The American President feels that his chances of re-election in November 2020 are "burning". Trump feels that all his trump cards, which he could boast of during the election campaign, are leveled by the "coronavirus", which he took lightly from the very beginning. You can then make as many statements as you like in the style of "I knew everything, but didn't want to deprive people of hope", however, if initially, the leader of the nation said that "Americans have nothing to fear" and "the coronavirus will not survive the April month", then when people start to get sick in tens of thousands and die in thousands, it's too late to make excuses. Also, Trump changes his forecasts about the possible number of deaths from the COVID-2019 virus with surprising frequency. Recall that the original version was that no one would die at all, then it was about 200,000 people, in April the American president talked about 60,000. During the last interview, Trump said: "We will lose from 75.8 to 100 thousand people. This is terrible." At the moment, more than 71 thousand deaths have already been recorded in the United States. Thus, the latest forecast of Trump can still be considered optimistic, which, however, does not prevent him from trying hard to open borders and restart the economy. Also, Trump has already made several contradictory statements regarding the COVID-2019 vaccine. It is known that many countries of the world are engaged in creating a vaccine, but its creation, according to scientists, will take at least a year. Thus, before 2021, the world should not wait for a vaccine. Trump himself has several times stated that the vaccine will appear before the end of this year, but recently retracted his words and said: "I can't be sure of anything, but I think we have a very good chance of having something very significant." The head of the National Institute of Allergy and Infectious Diseases, Anthony Fauci, has already refuted this statement of Donald Trump, saying that the development of any vaccine takes from a year to a year and a half.

In addition, Anthony Fauci also refuted statements by Mike Pompeo and Donald Trump that the "coronavirus" could have been created artificially in a Chinese laboratory. According to the country's chief epidemiologist, "The virus evolved in nature and then jumped the interspecies threshold." Also, Mr. Fauci believes that the version that the virus was discovered in the wild and only then moved the laboratory, where it subsequently escaped, is also untenable. And of course, this whole topic is overgrown with a huge number of rumors, opinions, and judgments. And no one knows why this or that expert is lobbying for this or that opinion. In any case, ordinary citizens and traders will not know the whole truth.

On the penultimate trading day of the week in the UK, it is planned to summarize the results of the Bank of England meeting. Recall that the Fed and ECB held their meetings last week and no particularly important decisions were made. In principle, all the developed countries of the world are now simultaneously expanding their programs of buying securities and bonds to finance the economy as needed. Most likely, at the meeting of the British regulator, no special changes in the parameters of monetary policy will be adopted. And traders have long been used to expanding incentive programs. One important point should be understood here. If the Bank of England (for example) decides to expand its quantitative easing program during normal quiet times, when the economy is growing all over the world or reduces rates, or simply its macroeconomic indicators begin to decline (no matter for what reason, for example, because of Brexit), then market participants can start to get rid of the British pound in large volumes, which will provoke a serious depreciation of the pound against other currencies. If all the key banks in the world reduce rates to zero and expand their programs to stimulate the economy to trillions, then traders have no reason to conclude that it is in the UK that "everything is bad" or "worse than in other countries", so there will probably be no sell-off of the British pound.

Also scheduled for today is a speech by the head of the Bank of England, Andrew Bailey, who, of course, as well as his colleagues from the Fed and ECB, will talk about the "economic shock", the need to stimulate the economy, and the huge values by which the British economy will decline in 2020. What else can the Chairman of the Central Bank talk about now? The more "dovish" his rhetoric will be, the higher the numbers he announced that the British economy may lose, the higher the probability of a fall in the British pound at today's trading. However, we believe that in general, this probability is not too high if we look exclusively at the fundamental factors.

But from a technical point of view, the probability of a further fall in the pound's quotes is quite high. First, the US dollar is now becoming more expensive against the euro, the pound, and other currencies. The reasons may be different, one of the options is the desire of market participants to protect themselves against a possible new conflict between the US and China. Secondly, the pound/dollar pair bounced from the Murray level of "7/8"-1.2634, as on April 14, thus forming a "double top" pattern, which implies a noticeable downward movement. Third, there is a probability that, like the euro currency, the pound will now consolidate in a wide side channel (about 400 points), if so, the decline will continue to its lower border – near the Murray level of "1/8"-1.2268. Fourth, none of the linear regression channels is directed down, and the price is fixed below the moving average line.

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The average volatility of the GBP/USD pair has started to decline again and is currently 118 points. For the pound, this is not too much, the main thing is not to start a new trend of increasing volatility, which may mean a new panic in the market. On Thursday, May 7, we expect movement within the channel, limited by the levels of 1.2244 and 1.2480. A reversal of the Heiken Ashi indicator upward will indicate the beginning of correction against the downward trend.

Nearest support levels:

S1 – 1.2329

S2 – 1.2268

S3 – 1.2207

Nearest resistance levels:

R1 – 1.2390

R2 – 1.2451

R3 – 1.2512

Trading recommendations:

The GBP/USD pair continues to move down on the 4-hour timeframe. Thus, traders are now recommended to stay in the sales of the pound with the goals of 1.2329 and 1.2268 and keep the shorts open until the Heiken Ashi indicator turns up. It is recommended to buy the pound/dollar pair again not before fixing the price above the moving average with the first goals of 1.2512 and 1.2573.

Explanation of the illustrations:

The highest linear regression channel is the blue unidirectional lines.

The lowest linear regression channel is the purple unidirectional lines.

CCI - blue line in the indicator window.

Moving average (20; smoothed) - blue line on the price chart.

Murray levels - multi-colored horizontal stripes.

Heiken Ashi is an indicator that colors bars in blue or purple.

Possible variants of the price movement:

Red and green arrows.

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

Overview of the EUR/USD pair. May 7. The ECB may not be able to stimulate the European economy, which will lead to the bankruptcy

4-hour timeframe

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Technical details:

Higher linear regression channel: direction - downward.

Lower linear regression channel: direction - downward.

Moving average (20; smoothed) - downward.

CCI: -116.6766

The EUR/USD currency pair starts in a continuing downward movement on Thursday, May 7. Thus, the trend for the pair remains downward, but all the downward movement can end near the Murray level of "0/8"-1.0742. However, before this, you first need to reach and work out this level. Traders spent the entire third trading day of the week in a completely calm manner, which does not allow us to conclude that there was any unrest in the market. Even in the European session, the pair's quotes resumed falling, but in the American session, the downward movement stopped. Daily volatility was only 64 points, which is one of the lowest values for the last thirty trading days.

For the past two trading days, the community of traders has been discussing only one topic. This is not the topic of a possible new conflict between China and the United States, nor is it the topic of "coronavirus". Quite unexpectedly, it turned out that the European Central Bank, when it repurchases securities of various states, doing this as part of the European economic stimulus program, or simply pumps up the economy with liquidity in times of crisis, may violate EU law, which prohibits direct financing of the debts of the member states of the alliance. On May 5, the German Constitutional Court ruled that the ECB exceeded its powers when it bought back about 2 trillion euros over the past five years. Now the European Central Bank needs to prove within three months that the program of repurchase of government securities was legal and did not contradict the principles of the European Union. Many analysts and traders hurried to write off the euro immediately after receiving this information, at the same time explaining the fall in the quotes of this currency in the last few days by the decision of the German court. However, we believe that the situation here is exactly the same as with the topic of Brexit, as with the topic of the trade war between China and the United States. This is such a large-scale event that it is unlikely to be reflected on the currency chart for several days. In other words, you should not expect that the euro currency will now go to parity with the dollar because of this court decision. Yes, this event threatens another batch of problems for the Eurozone. Most of which may be related to certain problems in the financing of European States now, in times of crisis, when financial support is needed most, as well as in the future. And for many European countries, especially in times of pandemic and crisis, the lack of funding will amount to bankruptcy. However, so far there is no decision prohibiting the European regulator from repurchasing securities. Moreover, the ECB has three months to at least hedge its bets and expand the European stimulus program even further. Or to provide assistance to all states that may be bankrupt, until the final verdict of the court. In any case, the ECB has time. We also do not believe that the ECB does not have any options. It is possible that the organization led by Christine Lagarde will be able to prove the legality of this program. However, problems with expanding the existing asset purchase program (PEPP) may still occur. And it is within the framework of this program that the ECB can really make claims since the purchases of securities from various countries were disproportionate and were not limited to 33% of each country's debt. At the same time, the German court ruled: "The decision published today does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis." However, most European political analysts now agree that in the future, legal proceedings may also affect the PEPP program.

In general, this topic is complex and serious. For the euro currency, this is not a blow at this time, but only a bell. Recall that one of the main mandates of the ECB is the stability of the euro currency. The Bundesbank has not yet been obliged to sell securities purchased for more than 500 billion euros, and many economists also believe that the ECB will easily resolve all problems with the German Central Bank. Therefore, from our point of view, this topic does not threaten the euro/dollar currency pair with absolutely nothing. And in the next three months, when the ECB will work on proving the legality of the quantitative easing program, it is unlikely that traders will get rid of the euro based on this event.

Christine Lagarde is scheduled to speak in the European Union on Thursday, May 7. Even at the beginning of the week, this speech was not on the calendar of events, so we can assume that the speech will be dedicated to the first stage of the ECB's defense against the attacks of the German court. At least, the head of the ECB can explain to the markets whether there were any violations during the bond repurchase program. In addition to the speech by Christine Lagarde, Germany will publish today the value of industrial production for March with a forecast of -7.5% in monthly terms. Also scheduled for today is a speech by ECB Vice-President Luis de Guindos, who will also not be able to pass by the German court's decision and will also comment on it. In the afternoon, the next report on applications for unemployment benefits in the US will be released with a forecast of +3 million. The total number of secondary applications for unemployment benefits may grow to 20 million. These are all the planned statistics for May 7.

We would like to return to the fact that technical factors remain the most significant when predicting the movement of the euro/dollar currency pair. We would like to draw the attention of traders to the fact that we talked about a very likely fall in the euro currency from the level of 1.1000 at the weekend and even earlier when nothing was known about the decision of the German court. The reasons are simple. The pair is probably now inside a fairly wide side channel, limited by the levels of 1.1000 and 1.0750. Thus, from its upper limit, and at the same time the psychological mark of $ 1.10, the downward movement was highly expected. And now, the pair's quotes are getting closer to the lower border of this channel, so a rebound with a turn upward may follow from the level of 1.0750. However, it is possible that traders will be able to withdraw the pair from the side channel, and only then it will be possible to talk again about the impact of the fundamental background on the pair's movement. So far, we believe that macroeconomic statistics do not have any impact on the currency market. Even the most important and significant reports. Thus, we should wait for further developments. Sooner or later, traders will start paying attention to statistical information.

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The average volatility of the euro/dollar currency pair as of May 7 is 94 points. Thus, the indicator has increased slightly and now its value is characterized as "strong". Today, we expect quotes to move between the levels of 1.0717 and 1.0905. A reversal of the Heiken Ashi indicator upward may signal a round of upward correction.

Nearest support levels:

S1 – 1.0742

S2 – 1.0620

S3 – 1.0498

Nearest resistance levels:

R1 – 1.0864

R2 – 1.0986

R3 – 1.1108

Trading recommendations:

The EUR/USD pair continues to move down. Thus, traders are now recommended to sell the euro currency with the goals of the Murray level of "0/8"-1.0742 and the volatility level of 1.0717 before the Heiken Ashi indicator turns up. It is recommended to consider buying the euro/dollar pair not before the price is re-anchored above the moving average line with the goals of 1.0905 and 1.0986.

Explanation of the illustrations:

The highest linear regression channel is the blue unidirectional lines.

The lowest linear regression channel is the purple unidirectional lines.

CCI - blue line in the indicator window.

Moving average (20; smoothed) - blue line on the price chart.

Murray levels - multi-colored horizontal stripes.

Heiken Ashi is an indicator that colors bars in blue or purple.

Possible variants of the price movement:

Red and green arrows.

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

Hot forecast and trading signals for the EUR/USD pair on May 7. The key events of the day are the speeches of Luis de Guindos

EUR/USD 1H

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The euro/dollar pair continued to fall on the hourly timeframe yesterday, as we predicted. Since the Senkou Span B line has increased, now it is above the price, and there are no obstacles to move further down to the ascending long-term trend line. The future of the EUR/USD pair will be decided near this trend line and the support level of 1.0754 lies in the same place. The support area of 1.0740 - 1.0750, which we talked about in fundamental reviews, is also located near the trend line. Thus, several strong supports are concentrated in the 1.0740 - 1.0755 range. And if the pair manages to overcome them, it will begin to form a new downtrend. If it fails, it will rush up again.

As we have already said in recent fundamental reviews, the entire macroeconomic background is now ignored by market participants. There is enough news at the disposal of traders now, but all the macroeconomic indicators of the economies of the EU and the US are obviously dropping, contracting and slowing down that it has ceased to amaze traders who at the very beginning of the crisis (March 2020) stopped responding to them. We believe that traders will ignore all of today's reports again. Focus will be on the speeches of the European Central Bank Chairman Christine Lagarde and Vice Chairman Luis de Guindos. We believe both functionaries are not going to make speeches just in the middle of the working week, especially after yesterday's information about the German court's verdict on exceeding the powers of the European Central Bank, which could lead to the Bundesbank withdrawing from the asset purchase program to finance the economies of European countries held by the ECB. According to many experts, such a split in opinions regarding the distribution of financial flows between EU countries, as well as regarding the need to provide assistance to the southern countries and sources of raising funds for this assistance, could be the beginning of the end of the entire European Union. We believe that it is too early to draw such conclusions, however, the statements by De Guindos and Lagarde will obviously provide new food for thought tomorrow.

Based on the foregoing, we have two trading ideas for May 7:

1) During the penultimate trading day of the week, we expect a resumption of the downward movement with targets in the area of 1.0755 - 1.0740, in which we recommend taking profit on sell positions. If the pair easily passes the indicated area and the trend line, then short positions can be reopened or left open with the target support level of 1.0645. Potential to Take Profit in these cases are 45 and 160 points. A pullback to the Senkou Span B line is not excluded, with a rebound from which the pair can be shortened

2) The second option - bullish - involves overcoming the resistance area of 1.0880-1.0895 and the Kijun-sen line. In this case, the trend will become upward again in the short term, and we recommend buying the euro while aiming for the April 19 high at 1.0990. Potential to Take Profit while executing this scenario is 80 points.

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

GBP/USD: Super Thursday for the pound

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An increase in the pound's sensitivity to global risk appetite enabled it to temporarily forget about unresolved issues related to Brexit, terrible macro statistics in the UK and expectations of monetary expansion by the Bank of England. However, these bearish advantages will be back on the game in May.

Because of London's demands for full control over coastal waters, as well as because of its rejection of EU restrictions on environmental, labor law and state aid, Brussels believes that negotiations regarding the future relations of the parties have reached an impasse. If they fail to agree before June, this will essentially mean the release of Great Britain from the EU without a deal.

Meanwhile, British PMI indices released on the eve of April indicate that in the second quarter of 2020, the country's economic downturn will be much stronger than ever.

In this regard, additional measures to support the national economy can be expected from the Bank of England and the UK government.

The UK cabinet is expected to expand fiscal stimulus and the BoE to absorb the growing volume of bond issues, will be forced to increase QE.

In March, the regulator announced the launch of a quantitative easing program of £200 billion and since then has purchased assets worth £70 billion. Keeping the same pace of debt acquisitions, the central bank runs the risk of ending QE in June. If the BoE does not increase purchases now, or at least does not hint at such a step in the near future, then the flight of investors from the local bond market will lead to an increase in yield, and an increase in the cost of borrowing will delay the process of recovery of national GDP. Apparently, the BoE will have to go on expanding the program by at least another £200 billion.

A regular meeting of the Bank of England will be held on Thursday, May 7.

In addition to the announcement of the decision on the rate and size of QE, the central bank will publish a report on monetary policy. This document includes various information, including the forecast for national GDP.

The British economy is expected to contract by 7.4% in 2020. In this case, the worst-case scenario assumes a fall of 9.2%. If the BoE report contains even more negative forecasts, then the pound could drop sharply.

"The GBP/USD pair cannot absorb the April high and the 200-day moving average in the area of 1.2643–1.2657. We are still waiting for a top to form. This fact will be confirmed by a decline to the level of 1.2248. Further support is noted at 1.2176, 1.1934 and 1.1884. In the event of a close above 1.2657, the trend will turn bullish again and resistance at 1.2726 will come into play. In the meantime, a breakout of the 1.1884 level and the bears will aim for a long-term upward trend from 1985 to the March low in the 1.1412 level," said Credit Suisse strategists.

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