Amplitude of the last 5 days (high-low): 19p – 33p – 20p – 47p – 87p.
Average volatility over the past 5 days: 41p (low).
The EUR/USD currency pair, which made an impressive growth on the first trading day of the week, completed it as expected on Tuesday, December 3, and the pair’s volatility again fell to its lowest values. Thus, as we have already said in the morning review, there are no special reasons for bulls to continue buying the euro, whether there were any or not. Yesterday, the upward momentum of the euro/dollar pair, from our point of view, was a mere coincidence of a whole group of factors that pushed the euro currency up. So? And then traders again refuse to buy the euro due to the fact that the European fundamental background remains extremely weak. Yes, business activity in industry showed some signs of recovery, as did inflation, which grew to 1.0% YOY. However, a recession is still observed in the production sector, not weak growth rates, and inflation is at extremely weak values that do not allow us to talk about the recovery of the EU economy. Thus, we believe that several indicators that showed a slight increase are still not the basis for large-scale purchases of the euro. It is this mood today that the participants in the forex market have demonstrated the lack of desire to buy the pair further.
Not a single macroeconomic report has been published in the US or the European Union to date. But the next batch of news came from the main newsmaker of recent years – Donald Trump. This time, the US leader said that he could quite easily wait for the signing of an agreement with China before the presidential election, or even more. That is, Trump with all his appearance shows that, firstly, he does not doubt his victory in the elections, secondly, he is not in a hurry to sign an agreement with Beijing, and thirdly, he does not worry about the absence of a deal, the escalation of the trade war with China could adversely affect its political ratings and therefore prevent it from winning the 2020 election. China has long realized that the Americans are not happy with the increase in prices for Chinese goods, are not pleased with Trump’s policy of “we will fight (thank God we are talking only about trade wars so far) with everyone who does not want to fulfill our conditions” and, therefore, any escalation of the trade conflict (or the beginning of a new one) will not be in the hands of the US president. We have long believed that China deliberately delays time, quite reasonably assuming that it’s better to be content with a slowdown in its own economy and a drop in GDP growth during the year, but then agree with a more loyal president than suffer losses and a bad deal for many years or maybe even decades. There is no doubt that the deal proposed by Trump will be unprofitable for China. In turn, Trump also understands that China is taking time, but cannot openly declare this and blame Beijing for this “mortal sin”. Otherwise, the Americans and the whole world will understand that Trump is really afraid that there will be no re-election for a second term and, accordingly, China will receive an advantage in the negotiations. Thus, it seems that Trump has chosen the strategy of “standing your ground and going all the way.” Will this have a positive effect on negotiations with China? We think that is unlikely. Trump will have to decide on December 15 whether or not to impose duties for another 160 billion dollars worth of goods from China, which in total can block all imports from it. Earlier, in the framework of trade negotiations, Trump postponed the decision on additional duties to December 15. Thus, most likely, duties will be introduced, once negotiations have stalled again, and China will probably also respond by imposing its sanctions and duties. Until the end of 2019, we will more likely witness an escalation of the conflict than a reconciliation of the parties. All this is bad for the global economy, and for the US, and for the Chinese, and for the European. There is every reason to believe that in such a situation, the US and European economies may continue to slow down, which again will bring more negative to the European currency, because the EU economy continues to look much weaker than the US.
From a technical point of view, the euro/dollar pair has worked out the resistance level of 1.1091 and could not continue to move up. Thus, a downward correction is now very likely. We would also like to note that traders were not able to overcome the previous local peak, which also speaks in favor of a downward correction or the resumption of a downward trend. Thus, we believe that turning the MACD indicator down could imply the beginning of a new trip down, but it is recommended to consider shorts only after traders overcome the critical line.
The EUR/USD pair maintains the prospects for the upward movement, and the volatility in today’s trading again declined. Thus, for those who are already in longs, it is recommended to take profits near the level of 1.1091, and consider new purchases only after overcoming the first target. Selling the euro, which has more fundamental grounds, will be better after overcoming the critical line of Kijun-sen.
Explanation of the illustration:
Tenkan-sen is the red line.
Kijun-sen is the blue line.
Senkou Span A – light brown dotted line.
Senkou Span B – light purple dashed line.
Chikou Span – green line.
Bollinger Bands Indicator:
3 yellow lines.
Red line and bar graph with white bars in the indicator window.
Support / Resistance Classic Levels:
Red and gray dotted lines with price symbols.
Yellow solid line.
Volatility Support / Resistance Levels:
Gray dotted lines without price designations.
Possible price movement options:
Red and green arrows.