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EUR/USD. States as prosecutor: US accusations against China support the dollar

The bulls of the EUR/USD pair lost the positional struggle for the 10th figure: buyers retreated and headed to the bottom of the ninth price level. This price dynamics is primarily due to the dollar, which unexpectedly grew throughout the market due to a surge in anti-risk sentiment. Traders were alarmed by two factors: firstly, the deterioration in relations between Washington and Beijing, and secondly, talk of a second wave of the epidemic. Such a fundamental background did not make it possible for buyers to continue their upward path, especially since the European currency is also in limbo due to political battles between the south and the north of Europe. Add here the contradictory rhetoric of Jerome Powell and the ambiguous theses of the Federal Reserve's minutes and you get a very confusing fundamental picture that does not contribute to either the growth or (so far) a significant decline in the pair.

But, let's start with Trump. The political conflict between the US and China is the strongest fundamental factor at the moment, which puts pressure on the pair. The phrase "cold war" is increasingly found in the information space, while the latest statements by the head of the White House only increased investor concern around this situation. According to him, China misinformed the world community without providing "reliable data on the transmission and distribution of coronavirus". Moreover, Trump also moved his accusations to the election plane - he is confident that "all Beijing's actions are aimed at ensuring that Joe Biden won the presidential election."


As a result, the US president threatened China with a complete severance of relations, while Congress is preparing to consider a new package of sanctions against China. Last week, Republican senators submitted a bill that gives Trump the right to impose sanctions on China if Beijing does not provide a "full report" on the COVID-19 pandemic. That is, the presidential administration and the pro-presidential party have openly accused the Chinese authorities of late warning the world about the epidemic and hiding its scale. Earlier, only Secretary of State Mike Pompeo voiced this idea, adding that Beijing deliberately hid the incident with the leak of the virus, which was developed in the biological laboratory of Wuhan.

China, as a rule, does not respond to Trump's angry posts, displaying, so to speak, "eastern wisdom" - the US president often changes anger to mercy in just a few days. But in this case we are talking about very specific, legislative steps. Therefore, Beijing still responded to recent events, and in a rather harsh form. China has threatened retaliation if the US Congress passes sanctions against Beijing for its alleged responsibility for causing an epidemic of a new coronavirus. The corresponding statement was made at the level of the Chinese parliament. The head of the press service of the National People's Congress of China said that "China never creates problems, but it never backs down. "We will protect our interests if the US takes any actions that undermine them."

As you can see, there is no specifics here, but the message looks pretty clear. It was after Beijing's response that the dollar, as a defensive asset, began to be in high demand. The possible escalation of the trade war after the unprecedented coronavirus crisis is not good news for the global economy. Therefore, the concern of market participants seems reasonable.


Traders also responded to the increased risk of the second wave of the COVID-19 epidemic. According to Andrea Ammon, head of the European Center for Disease Prevention and Control (ECDC), the prospect of a new wave is no longer a "distant theory". The only question is when exactly it will happen and how terrible the repeated flash will turn out. Ammona also noted that an attempt to return to a normal, "pre-quarantine" way of life with non-observance of social distance is fraught with sad consequences. The fact is that only 2% to 14% of the population was ill in different countries of Europe - which means that the rest are still susceptible to coronavirus.

Thus, an unexpected surge in anti-risk sentiment did not allow buyers to enter the 10th figure. Bears seized the initiative and are now pulling the pair to the eighth price level. If relations between the United States and China continue to deteriorate (and this directly depends on the fate of the above-mentioned Republican bill), the dollar will gradually increase its position. But in my opinion, it is not advisable to open any trading orders today - both buying and selling look risky. And even more risky to leave open positions for the weekend. The fundamental picture for the pair can change quite quickly - the history of relations between the superpowers suggests that diplomatic and backstage negotiations are going on after harsh and public statements. The support level for the EUR/USD pair is 1.0880 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart). The resistance level is still the round mark of 1.1000, which also coincides with the upper line of the Bollinger Bands on the same timeframe.

The material has been provided by InstaForex Company -