EURUSD: bears push for correction

On Wednesday, July 29, the euro ended the day 0.65% higher. The daily candle closed at 1.1791. After a two-day meeting, the FOMC decided to leave interest rates unchanged, with federal funds rate in the range of 0.00-0.25%.

The regulator’s decision was in line with the expectations of market participants, so it did not cause any sharp gyrations on markets. Of particular interest were the comments by Fed Chairman Jerome Powell. Powell said US dollar swap lines and the temporary repurchase agreement facility for other central banks will be extended through March 31, 2021. He also noted that the acceleration of COVID-19 cases is hampering economic recovery and said he was at a loss about how long this would last.

The key rate will remain at the current level as long as the economic shock continues. Long-term forecast: at the end of the June meeting, the regulator announced that it did not expect a rate hike until the end of 2022.

US stocks closed the day in positive territory after the FOMC meeting. Powell reaffirmed his commitment to support the economy until the coronavirus threat winds down.

Today's macro agenda (GMT+3)

  • 10:55 Germany: unemployment rate (July)
  • 11:00 Germany: Q2 GDP (preliminary), ECB Economic Bulletin
  • 12:00 Eurozone unemployment (June)
  • Other releases include Germany’s Business Confidence Index (BCI), and Consumer Confidence Index (CCI)
  • Economic Sentiment Index, Business Optimism Index in Industry, Index of Business Optimism in Industry and Index of Business Sentiment for July.
  • 15:00 Germany: CPI (July)
  • 15:30 US: Q2 GDP, initial jobless claims

Current situation

Looking at yesterday’s trend, buyers pushed up the high from 1.1781 to 1.1806. In Asian trading today, the pair fell to 1.1750 (trend line, 45th degree). We envision two scenarios for today. In line with our baseline scenario, the pair will head lower as double top pattern shapes up. Gold and cryptocurrency are steady, which implies that buyers could again catch sellers in the trend.

On the other hand, a bearish divergence has formed between the AO and the price. Selling may have picked up for this reason. If the trendline does not hold, and pressure increases from closing longs and triggering protective stops, we can expect to see a drop to 1.1730 (67th degree and a check point for the bullish trend). Since stochastic lines are below, we picked euro weakness through a recovery to 1.1800/07 as our main scenario. We made this forecast as the week comes to an end in order to assess our price model expectations.

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