EUR/USD. Preview of the new week. Will the euro continue its upward march next week? What factors will be most important?


Tomorrow, a new trading week will begin. In this article, we will try to understand what we can expect from the euro/dollar pair. First of all, I would like to focus on the technical picture. Often, "technology" conflicts with "foundation" or "macroeconomics". For example, there is a buy signal and an upward trend, however, the Nonfarm Payrolls come out and the markets turn sharply in the opposite direction. However, this was the case before the pandemic. With the arrival of the coronavirus epidemic, a lot has changed in the world and the foreign exchange market. In particular, macroeconomic statistics are mostly ignored, and meetings of central banks and important speeches of the heads of these banks are infrequent. So it turns out that it is now possible to rely mainly on technology when making trading decisions. What about the technique? As we have already said, on the 24-hour timeframe, the pair's quotes rebounded from the 50.0% Fibonacci level, as well as from the lower border of the Ichimoku cloud of the Senkou Span B line. Thus, in the long term, the trend remains upward and the chances of updating the 2.5-year highs are high. As we have already said, "macroeconomics" has almost no effect on the movement of the pair. Accordingly, only the "foundation" remains. The "foundation" now consists of only two factors (in our opinion). This is "a factor of multi-trillion dollar packages of measures stimulating the American economy" and "a factor of the balance of forces of the American and European economies". Even though the US economy is recovering more quickly than the European one, it is the euro currency that continues to rise in price (if we take a long-term perspective). This is because in the second quarter of 2020, the American economy lost 31%, and the European economy lost 12%. Accordingly, the US economy is catching up with the European one, however, it has not yet caught up. And of course, the first factor of the "stimulus packages for the US economy". Recall that only during 2020, the US Congress approved incentive programs for $ 4 trillion. Also, the Fed buys at least $ 120 billion worth of securities from the market every month. That is, the economy is actively pumped with money. Accordingly, this very money is becoming more and more, respectively, the exchange rate of "this money" (in our case, the dollar) is falling. Some might say that the European Union also has its programs to stimulate the economy, however, they are much less voluminous. For example, the PEPP emergency program is worth 1.85 trillion euros. However, it began to operate last year and is still not completed. This means that out of 1.85 trillion euros, no more than 900 billion have been poured into the economy. The European government does not practice any "helicopter money" packages. There is no distribution of money to the population as compensation and assistance due to the pandemic. The 750 billion euro economic recovery fund, which provides grants and loans to the most affected countries, was approved with heartbreak, but at the current date, it has not even been formed. Thus, much less money is poured into the European economy, so the euro currency has become more scarce in the last year compared to the dollar. Hence its growth.

As for the second factor, the "ratio of economies": here we still have to pay attention to the macroeconomic statistics. Although it does not have any immediate effect on the movement of the pair. Next week, the European Union will publish reports on industrial production, changes in GDP, indices of business activity in the services and manufacturing sectors, as well as the ZEW index of business sentiment. Of all the indices, we will be most interested in the index of business activity in the service sector, because the acceleration of the EU economic recovery also depends on when this sector begins to recover after the winter lockdown. Christine Lagarde focused on the weak state of the service sector this winter, so we also drew the attention of traders to this report. According to forecasts, the index will remain below the level of 50.0. Thus, we will not yet be able to state the beginning of the restoration of this sphere. Industrial production in December is expected to decline by 0.4%-1.0% every month. Also bad. The GDP report predicts a decline in the fourth quarter by 0.7% in quarterly terms and 5.1% in annual terms. Thus, the statistics from Europe next week may greatly disappoint market participants. Consequently, the US economy will continue to catch up with it, however, it will probably not catch up in the near future. Therefore, traders should simply fix the fact that the European economy continues to stall. No important speeches are scheduled for next week.

Thus, after fairly strong growth of the pair this week, next week we may see some semblance of consolidation. This will not necessarily be a downward correction, however, it will probably be a movement inside the Ichimoku cloud with a continuing upward slope. On the 24-hour timeframe, the pair needs to overcome the Kijun-sen line to count on the continuation of the march to the north. We do not see any reasons why the US dollar may strengthen next week. These may be technical reasons, but the dollar has only recently completed a month-long round of strengthening. Therefore, now a new round of its fall is more likely.


Trading recommendations for the EUR/USD pair:

The technical picture of the EUR/USD pair shows that the pair on the 24-hour timeframe bounced off important supports in the face of the Senkou Span B line and the 50.0% Fibonacci level. Thus, a new round of upward movement is expected. And as long as the price is not fixed below the Senkou Span B line, this option will be the main one. Thus, on the 4-hour chart, it is now recommended to trade for an increase. The pair on Friday began a round of correction but bounced off the Kijun-sen line, which may mean the end of the correction and the resumption of the upward trend. Accordingly, until the price is fixed below the critical line on the 4-hour timeframe, the upward trend continues and we should consider trading for an increase with the targets of 1.2139 and 1.2229 and up to 2.5-year highs.

The material has been provided by InstaForex Company -