Bears of the euro-dollar pair are trying to gain a foothold in the ninth figure today: sellers easily sorted out the support level of 1.1010 (the upper limit of the Kumo cloud on the daily chart) and went down to the middle of the ninth figure. However, this ended the blitzkrieg. A protracted positional struggle began against the background of a rather contradictory fundamental picture. From a technical point of view, the bears had an open path to the lower boundary of the above – mentioned cloud (1.0880) earlier in the day. If they had impulsively broken through the 1.0900 mark, the probability of overcoming this support level would have been almost one hundred percent. In this case, the downward trend would have continued.
But the market, as well as history, does not tolerate the subjunctive mood. De facto, dollar bulls no longer demonstrate their former confidence in their abilities – if during the previous two weeks, sellers of EUR/USD literally swept away everything in their path (the pair collapsed by more than 500 points in ten trading days), now they have to win back literally every point. If we talk about the situation “inside the day”, the sales were justified after the bears overcame the upper limit of the Kumo cloud on D1 (1,1010). Having conquered this price outpost, sellers were able to go down almost a hundred points – to the daily low of 1.0927. Here they met resistance from buyers and were unable to “give a fight” – the intraday fundamental background did not contribute to the unambiguous strengthening of the dollar, especially in the afternoon. Therefore, the EUR/USD bulls effortlessly took the initiative and returned the price back to the 10th figure.
Such price somersaults were caused by the current news flow. In particular, the European inflation indicator for March came out today worse than forecasts. The overall consumer price index fell to 0.7% from the previous level of 1.2% (the forecast for a decline was 0.8%). Core inflation also showed a negative trend, falling from 1.2% to one percent. By and large, the slowdown in European inflation fits logically into the overall fundamental picture of European macro indicators in the context of the crisis. On the other hand, the published figures were still in the “red zone”, even despite the rather weak forecast values. This fact put pressure on the Euro, after which the pair updated the daily low.
Moreover, the pressure on the pair increased at the beginning of the US session – the US published an indicator of consumer confidence, which unexpectedly turned out to be better than expected. Although the indicator updated the multi-month low (120 points), it still exceeded the forecast level. According to most experts, the indicator should have shown a deeper decline – up to 115 points. We can not say that there is any reason for optimism, but the fact that the report was in the green zone cheered dollar bulls. In addition, the US currency was in some demand as a defensive asset, especially after the key wall street indexes opened in negative territory: the Dow Jones Industrial Average and S&P 500 fell by 0.55%, and the Nasdaq Composite – by 0.25%.
But the EUR/USD bears could not take advantage of the situation. In contrast to their arguments, the pair’s bulls received a more weighty argument of a fundamental nature. Today it became known that the Federal Reserve will launch a new credit program for foreign central banks starting April 6. In fact, the Fed is expanding access to dollars through a REPO agreement: foreign central banks will now be able to access US dollars (during the so-called coronavirus crisis) by exchanging their holdings of US Treasury securities for dollar loans overnight. The duration of this program is currently limited to six months (“at least six months”), but the US central bank has made it clear that if necessary, it will extend its operation. Let me remind you that the Fed has already launched several programs that provide dollar loans at a “close to zero” rate to foreign central banks. To provide dollar liquidity, the Fed also opened swap lines with five central banks (including the ECB, Bank of Japan, and Bank of Canada) and provided multibillion-dollar loans to regulators in nine other countries.
In other words, the Fed just extinguished the short-term downward momentum for the EUR/USD pair. This factor saved the pair from falling into the eighth figure – in general, the fundamental background contributed to such a price movement – if not for the US regulator’s intervention, sellers would have already tested the support level of 1.0880.
But the fact is today’s round is still a draw, and the situation looks extremely uncertain at the moment, especially in the run-up to tomorrow’s key releases.
The ADP report on changes in the number of employed in the United States will be released tomorrow. It is important first of all in the context of the upcoming Nonfarms, which will be published on Friday. Forecasts are disappointing – according to ADP specialists, the number of employed people in March decreased by 125,000. Such a result will be a long-term anti-record and will undoubtedly put pressure on the US currency. In addition, the ISM manufacturing index is expected to be published on April 1. There will also be a “no laughing matter” – according to general expectations, this indicator will again fall under the key 50-point mark and reach 46 points, which is a multi-year low.
Thus, at the moment, it is advisable to take a wait-and-see position for the pair: selling looks risky until the bears have overcome the support level of 1.0880, while purchases look unreliable until the bulls have risen (and secured) above the target of 1.1060 (the average line of the Bollinger Bands indicator coincides with the Kijun-sen line on the daily chart). Given the importance of tomorrow’s releases, there is a high probability that the EUR/USD pair will still choose the vector of its further movement by the end of the US session on Wednesday.