EUR/USD. Christine Lagarde hopes that "the worst is over", but fears a second wave of the "coronavirus" epidemic.

4-hour timeframe


In the first trading days of the completed trading week, the euro/dollar pair showed a desire to start a new upward trend. The critical Kijun-sen line was crossed, which gave hope for a new strengthening of the euro currency, which we considered groundless from the foundation. However, in the middle of the week, the mood of traders changed sharply to the opposite and the downward movement resumed, so at the moment the trend is again downward. The overall fundamental background has not changed at all over the past week. The euro currency continues to give the dollar debts for unjustified growth a couple of weeks ago. In general, all the problems of the United States and the European Union have not gone away and continue to exert almost equal pressure on both currencies. Thus, we believe that the euro and the dollar are now approximately equal. Both economies will show a reduction of 5-10% by the end of 2020 (a greater fall in the economy is expected in the European Union, according to Christine Lagarde), the ECB and Fed rates are reduced to "zero and lower" (in the EU, they are lower), and new programs to help the economy are stuck in the Congress and the European Council. Thus, in general, no one should have an advantage in the coming months or it should be minimal for the dollar. Despite the social and political crises.

On the last trading day of the week, ECB President Christine Lagarde made a speech in the morning. In principle, now absolutely any speech by the heads of the ECB or the Fed is colored "black". This is clear even before the speech. What can the heads of central banks say in the conditions of a severe economic crisis? Although there were certain optimistic notes in Lagarde's statements. The head of the ECB said that "the worst period of the crisis caused by a coronavirus infection may be over". However, "recovery to pre-crisis levels is unlikely in the near future". On the one hand, it's good that the worst is over, but on the other, no one knows for sure. Recall that the "coronavirus" continues to spread around the world and, for example, on June 26, that is yesterday, 194,000 people were sick all over the world, which is an absolute record. Thus, it may be possible to stop the spread of the COVID-2019 virus in some countries, however, this does not apply to the whole world. The largest number of new cases were recorded in Brazil and the United States. That is, in countries far from the weakest economy. Thus, for all those countries where the epidemic has been "calmed", the question now is what to do with borders and business activity at the international level? The United States is one of the largest trading partners of the European Union, should the borders be opened to American citizens? At the same time, all countries in the modern world are closely tied to each other, so the EU will not be able to recover at a high rate, if, for example, the United States will remain in decline. Also, Lagarde said that a second wave of the epidemic is quite possible, and the whole world will be in suspense until a cure or vaccine against COVID is found. The European economy is expected to lose about 16% in the first two quarters. The head of the ECB also noted that business will have a hard time, it will struggle for survival and must adapt to the new conditions of reality.

Thus, analyzing Lagarde's speech, we can say that there should be no optimism among market participants. Everything still depends and will depend solely on the health sector. The sooner a cure is found, the faster the global economy will begin to fully recover. Without this, recovery will be selective and incomplete. In the United States, data on personal income and spending of Americans for May were published on Friday. The first indicator showed an increase of -4.2% and the second +8.2%. Interestingly, the first was better than the forecasts, and the second – worse. However, this data did not interest traders in any way and did not affect the course of trading in any way.

Thus, at the end of the week, we can draw the following conclusions. First, the markets are clearly in some turmoil right now and are not sure which way to trade 100%. Secondly, in the long term, the euro/dollar pair can be traded in a wide side channel or on a channel with a minimal downward slope. The whole movement may be similar to the movement of 2019 when the euro currency fell by just 2 cents in 12 months. The latest COT report, released on Friday, also did not show any major changes, as we have said throughout the week. Professional traders during the reporting week (June 17-23) opened 5 thousand new transactions for buying and selling in approximately equal volumes. And the total number of transactions for sale increased by 13 thousand (6 thousand contracts were opened for the purchase of euros). Thus, in general, the mood of major market participants has not changed, and the minimum advantage remains for sellers, although speculators now have 191 thousand contracts to buy and only 72 thousand to sell. The balance is held by players who hedge their risks, who have an advantage in short positions by almost 160 thousand.

In the next trading week, we do not expect any major changes in the exchange rate of the euro/dollar pair. Most likely, the trades will again be multidirectional without a clear trend. From a technical point of view, the pair failed to update the previous local minimum, as well as failed to overcome the previous local maximum. Thus, formally, we are already witnessing a flat. Thus, in such conditions, we recommend first of all to conduct careful trading and not to take unnecessary risks.

Trading recommendations:

In the 4-hour timeframe, the euro/dollar pair retains the prospects of a weak downward movement. Thus, short positions with the goals of 1.1140 and 1.1112 are currently relevant. It is recommended to return to buying the euro currency not before fixing the price above the Ichimoku cloud and the Kijun-sen line, but traders have recently had problems with overcoming the level of 1.1350, so the overall upward movement may be short-lived.

The material has been provided by InstaForex Company -