4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -45.7434
On Tuesday, May 12, the EUR/USD currency pair starts with an attempt to resume its downward movement. Yesterday's attempt to overcome the moving average line was unsuccessful, so the movement to the upper border of the side channel 1.0750-1.1000 is still postponed. At the moment, the Heiken Ashi indicator signals a move down to the lower border of the channel. Thus, only overcoming this line can trigger the formation of a new downward trend. The volatility of the first trading day did not exceed even 50 points, which was completely expected. At the same time, we note that the markets seem to have finally calmed down and the currency pair has completely returned to normal. Thus, trading is now safer than a month ago. The only thing is that traders need to find new grounds for forming a new trend.
No important macroeconomic reports were scheduled for the first trading day of the week. No major fundamental events occurred during the day. However, this does not mean that nothing interesting is happening in Europe and the US right now. There are plenty of topics for discussion, and the culprit for the occurrence of 80-90% of them is "coronavirus". We have already said that the European Union, if it is not literally on the verge of collapse, then the contradictions between the countries are becoming more and more clear. And if there are contradictions that cannot be resolved, it can trigger a new referendum at any time (as in Britain in 2016). There are actually two options here. First, the current government of any country can decide to leave the European Union. Secondly, the government of any country can decide to hold a referendum for leaving the European Union. And, thus, everything will now depend on the number of opponents of European integration in the Parliament of a particular country. And the Parliament of any country is elected by the people. Thus, the more dissatisfied the population is with the current attitude of the "top" of the European Union to their country, the more likely it is that political forces that support breaking ties with the Alliance will vote in the next election. Not to mention that political parties that are already in power may start looking towards independence.
Now in times of pandemic, the issue of splitting the European Union is most acute. We have repeatedly written that several countries in the bloc have been hit by the pandemic much harder than others. By the way, one of these countries is the UK, but it has already left the EU, so it can't count on any help (I wonder if Boris Johnson regrets this?). However, in addition to the Kingdom, we are talking about Spain, Italy, and Portugal. You can also recall Greece, which has not yet recovered from the mortgage crisis of 2008-2009. All these countries require assistance from the EU leadership but do not receive it in the proper amount. The most pressing issue is the economic one. According to the forecasts of the European Commission, the Eurozone will lose 7.4% of GDP in 2020. And countries like Italy and Spain – about 10% of GDP. This will lead to an increase in the budget deficit, and unemployment is also rising. All this only exacerbates the crisis in Italy, which has been discussed in recent years. It all started with non-compliance with the European Union's budget deficit and maximum debt levels, and now with the arrival of the pandemic, Rome's deficits and debts have grown even more. The EU leadership, of course, has approved several packages of financial assistance to all the countries of the bloc, but this money is clearly not enough, and the pandemic continues, and with it the greatest crisis since the American Great Depression. The European Council has long wanted to implement the idea of "coronabonds" - debt securities that would be issued for placement outside the EU and on behalf of all countries, but the wealthiest EU countries (Germany, Austria, the Netherlands, Finland) did not agree to this option, not wanting to participate in the burden of additional debt obligations to save the less rich and more affected EU countries. Moreover, just a week ago, the German court decided to explain to the ECB the legality of buying securities through the central banks of the member countries of the Alliance in order to finance public debt. According to the German court, the ECB did not have the right to buy bonds, especially in disproportionate amounts, directly financing some countries. The ECB has already made a statement that the German court did not order it, but Berlin has made it clear that it will not at its own expense pull half of the Eurozone "from the other world". This means that you can definitely forget about "coronabonds", which means that the European Parliament will need to look for other sources of financing for troubled economies.
Meanwhile, dissatisfaction with the lack of aid in Italy is growing. According to the latest opinion polls, 67% believe that membership in the European Union is harmful to the country. And in Italy, according to everyone's opinion, just eurosceptics came to power last year, and they can try to initiate the country's exit from the EU. Also, Italy is completely dissatisfied with the fact that in addition to the lack of financial assistance, the wealthiest Germany and France banned the export of medical equipment as soon as the epidemic began. Thus, in Italy, the number of deaths from COVID-2019 was calculated, and hospitals were simply bursting with the influx of sick people. At the same time, ventilators and other equipment were "gathering dust" in warehouses in France and Germany.
It is also worth noting that Italy promoted the idea of "coronabonds" back in 2010, but even then this proposal was rejected by Germany. Instead of securities guaranteed to the entire EU, a rescue fund was created, which lent countries on special terms, which, first of all, meant a serious reduction in the costs of the countries being lent. Italy, Spain, Portugal, and Greece used the fund to recover from the 2008-2009 crisis and had to cut spending in many areas, including health care. Thus, Italy now has claims to Germany also of a health-care nature. Some political forces, such as the "Brothers of Italy" party, are already demanding an immediate exit from the EU. So far, their votes are few, but the more the economic crisis in Italy increases, the faster the number of eurosceptics will grow. And Italy's help may not come soon. The European Commission continues to develop a 2-trillion plan to help the European economy, which will be financed from the European budget and through capital markets for seven years. However, neither the sources of funding nor the total amount of funds needed have yet been approved by the European Council (a group of Finance Ministers from the EU Member States). Thus, according to experts, this plan will not be approved until June, and maybe even July and Italy will not receive assistance earlier than these months.
The average volatility of the euro/dollar currency pair as of May 12 is 69 points. Thus, the indicator continues to decline and its value is characterized as "average". Today, we expect quotes to move between the levels of 1.0744 and 1.0882. Turning the Heiken Ashi indicator upwards may signal a new approach to the upward movement to the level of 1.1000.
Nearest support levels:
S1 – 1.0803
S2 – 1.0742
S3 – 1.0681
Nearest resistance levels:
R1 – 1.0864
R2 – 1.0925
R3 – 1.0986
Trading recommendations:
The EUR/USD pair failed to overcome the moving, so at the moment the downward trend is resumed, limited by the Murray level of "0/8"-1.0742. Thus, sales of the pair with targets in the area of 1.0750-1.0740 are relevant now again. It is recommended to consider buying the euro/dollar pair not before fixing the price above the moving average line with the goals of 1.0882 and 1.0925.
