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EUR/USD. Preview of the week. US-China confontronation is just beginning

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The past week ended indistinctly for the EUR/USD pair. Market participants ignored around 90% of the macroeconomic information that came to the market during the week. Not only did the pair remain in the consolidation channel, limited by the 1.0750–1.1000 levels, but also started trading in another sideways and narrower channel, limited by the 1.0780–1.0880 levels. Thus, the pair is simply flat. And we believe that, in principle, this development is quite logical.

First, as we all know, there is no eternal and constant trend in any market. Periods of trend movement are replaced by periods of correction and lateral movement. Since February 1, the markets have witnessed at least three trends in the pair, each of which was very strong. Thus, when traders sated their appetites, trading volumes began to decrease, and the opening of new positions became small. There is no advantage for bulls or bears right now. Markets have recovered from the shock of the coronavirus epidemic and the coronavirus crisis. Traders realized that these two events will affect everyone - Europe, the United States, and the whole world. Thus, it is not possible to conclude that all is well in any particular country, so you should invest in its economy and buy its national currency.

Secondly, in order for a particular currency to become more expensive in the medium or long term, global fundamentals are needed. In recent years, for example, such a reason was the difference in interest rates between the ECB and the Fed, thanks to it, the US dollar has slowly, but surely, become more expensive. Now the difference is not as big as it was a few months ago, and both the central bank, in cooperation with governments, are pumping their economies with dollars and euros, giving out cheap loans and buying out securities. Thus, now there are simply no fundamental reasons for buying the dollar or the euro.

Third, the prospect. No one knows how the crisis will end and how much more time the pandemic will torment mankind. Representatives of the medical field in different countries all say as one that it will take at least a year to create a vaccine. Yes, some countries have already begun to produce vaccines, but they have not passed all clinical trials and cannot be considered effective and safe for humans. Thus, traders are simply afraid to make long-term investments. In Europe, GDP is expected to fall by 7.5% in 2020, and in the United States by only 5%. Need to invest in the dollar? But what about the nearly 30 million unemployed Americans? Thus, if you make a choice now, then do so in favor of the Chinese yuan. The Chinese government managed to quickly defeat the pandemic, and their economy has already begun to recover, and by the end of 2020 it may even grow by 1.2%. Yes, this growth is minimal, but compared to US and EU GDP, it is "heaven and earth."

The upcoming week will answer the question whether market participants are ready to form a new trend or continue to trade the pair in a narrow price range. Of the important events (unplanned), we again highlight all the speeches of Donald Trump, who has long been the number one newsmaker in the world, as well as any news related to the China-US confrontation. We believe that Washington will not forgive China for the coronavirus, especially if the US economy contracts by at least 5%, while the Chinese economy will also manage to grow by 1-2% over the same period. In this way, the White House will seek to deal a blow to the Chinese economy, but in a way that does not further destroy its own. It is difficult for us, ordinary citizens, to guess now how everything can end. A new trade and economic war between the two will hit the entire world economy, which has not yet recovered from the first trade war with the same participants and is now under severe pressure due to the COVID-2019 pandemic. But there is simply no other option for Washington and Trump. Many analysts and experts have already stated that thanks to the new crisis, China can significantly strengthen its position in the international arena and become the country with the largest economy in the world. It is obvious that the United States can not allow this and will continue to put pressure on Beijing, especially since it is from China that the infection has come, which has struck almost all countries of the world. And in the question of retaliatory measures and actions against China, the support of Washington by European countries will be of great importance. First of all, we are talking about the UK, whose Prime Minister Boris Johnson is a friend of Trump. However, other European countries that also want compensation from China may join them. If this happens, the trade and economic confrontation may become global, and then China's prospects will no longer be so bright.

The Trump-China confrontation deserves to be written not only as articles, but also in books. It was China, against which Trump has so cheerfully fought in recent years, and wanted to force them to play by their own rules that benefit America, that dealt him such a blow, from which the entire country will recover for a very long time. And Trump's hopes for re-election in November are fading. Back in the days of the China-US trade war, we have repeatedly said that the Chinese will benefit if Trump is not the new president. Beijing has even been accused of deliberately delaying trade talks in order to wait for the election and the victory of another candidate. However, Trump saw through this plan and began to put new pressure on China. As a result, the "first phase" was signed and just a month and a half later the epidemic began. Therefore, if we assume that the virus really did not accidentally break free, it turns out that China responded grandly to Washington's trade war. The whole world was affected, of course, but nevertheless. All of Trump's advantages, which he intended to use during the election campaign, are offset. Thus, in the final months of his rule, the US leader will do everything to whitewash himself and denigrate China. And this story will develop almost unambiguously.

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Trading recommendations for the EUR/USD pair:

The technical picture of the EUR/USD pair shows that the upward movement can continue with the target level of 1.0990, which is the upper limit of the side channel of consolidation, as last week traders were not able to overcome its lower border. Nevertheless, overcoming the critical line is required for such an option. The pair can turn down around the 1.0880 level. It can rebound from the Senkou Span B line. Thus, although the pair is located inside the side channel, there are plenty of obstacles for moving up. The Ichimoku indicator in the conditions of a flat forms false signals. Traders will be able to count on forming a new downward trend after overcoming the lower line of the channel - 1.0740–1.0750.

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