So, the next blitzkrieg of the bulls of the EUR/USD pair failed: after several attempts, the buyers could not gain a foothold above the 1.0880 mark and, all the more, enter the ninth figure. Surrendering under the onslaught of various fundamental factors, the bulls lost control of the situation, after which the bears quickly seized the initiative. Their task is to gain a foothold in the area of the seventh figure, which in the current conditions is also very problematic. In other words, the pair is still within the wide-range flat - only now at the lower boundary of the price range 1.0750-1.0900. For the second week, traders have been trading in the 150-point range, testing the upper or lower border of the specified range. But the contradictory information flow does not allow either bulls or bears to escape from it in order to develop, respectively, the upward or downward trend.
Let me remind you that at the beginning of this week the pair showed growth due to the general weakening of the dollar, which, in turn, responded to negative macroeconomic reports. April Nonfarms confirmed the catastrophic situation in the labor market, while inflation indicators (CPI and producer price index) reminded traders of a significant decline in US consumer activity. Key economic indicators have gone deep into the negative area, scaring investors with their dynamics. Against the backdrop of such statistics on the market, they started talking about the fact that the Federal Reserve may decide to introduce negative rates. The fact of a wide discussion of this scenario put significant pressure on the greenback. Even the Fed members who commented on these rumors indirectly weighed on the dollar - they say, if this topic was discussed at such a level, then the likelihood of this scenario still exists, because "there is no smoke without fire".
Nevertheless, Fed Chairman Jerome Powell reassured traders yesterday, thereby supporting the dollar bulls. He categorically rejected the idea of introducing negative rates, saying that the Fed has other methods of influencing the economy in its arsenal. In addition, he urged congressmen not to put off the bill on an additional assistance package, the total amount of which exceeds the trillion mark.
Although Powell actually announced further steps to ease monetary policy (excluding a rate cut below zero), traders received his speech positively, after which the dollar recovered throughout the market. The Fed chief offset fears about a negative rate, and secondly, publicly supported the idea of additional assistance from Congress. The fact is that we are talking about an initiative of the Democrats, which was perceived "with hostility" by the Republicans. And since the same party members of Trump (who is preparing to be re-elected in November for a second term) control the Senate, the chances of passing this bill, at least in its current form, are quite small. Therefore, traders reacted positively to Powell's "agitation" – although, in my opinion, he could not and will not change the political situation around this legislative initiative.
Today, dollar bulls have strengthened their positions, but for a different reason. Anti-risk sentiment has increased in the market amid reports of a second wave of coronavirus. These assumptions are (so far) hypothetical, but the market has taken them seriously. The starting point here is a warning from the European center for disease prevention and control. According to the experts of this department, EU member states should prepare for the second wave of infections, using all possible means to improve their surveillance systems for the epidemiological situation. In this case, a relapse may occur even if the first wave was "correctly taken under control". A message appeared on the background of repeated disease outbreaks in South Korea, Saudi Arabia, Singapore and even China. It is worth noting that key European countries have just started to come out of quarantine, reviving economic processes, so such news provoked if not panic, then serious concern among traders.
Thus, the bears received a reason to break the price range of 1.0750-1.0900 in order, firstly, to settle in the seventh figure, and secondly, to identify new price horizons (the next level of support is mark 1, 0636 is the low of this year as well as the previous three years). But so far, sellers have not even approached the lower limit of this range. Therefore, from current values, you can open short positions to around 1.0750. There is a more risky option for the medium term - a long position to the level of 1.0850 (the middle line of the Bollinger Bands indicator on the daily chart) with a mandatory stop loss of 1.0750.
The material has been provided by InstaForex Company - www.instaforex.com