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February 22, 2020

First, a review of last week’s events:

  • EUR/USD. The dollar index has already gained 2.5% since the beginning of February, reaching the highest since May 2017. The euro continues to lose ground. Beginning on January 01, the advance of the dollar has weakened the European currency by 440 points. It has lost almost 300 points, or 2.7%, in the last three weeks of continuous decline alone.
    Experts have managed to put forward many reasons for what is going on during this time, most often referring to fears about the coronavirus. But even here, when they talk about the same thing, they manage to draw opposite conclusions. As a result, some attribute the dollar to safe-haven currencies, while others, on the contrary, consider it a rather risky asset that will bring losses to investors as soon as the peak of the epidemic is passed and the Chinese economy begins to recover. It is quite possible that this will start to take place in the near future, since the Chinese leadership is applying efforts not only to fight the epidemic, but also to stimulate production and ease the monetary policy. One of these measures was the reduction by the People's Bank of China of the interest rate on the yuan from 4.15% to 4.05% on Thursday, February 20.
    We cannot but agree with those experts who believe that the catalyst for the fall of the EUR/USD pair is the weakness of the European economy in the first place and ultra-low interest rates, which make the dollar much more attractive to investors. In addition, the truce in the trade war between the US and China also plays against the Euro.
    The majority of analysts (60%) had voted for a further fall in the euro last week, supported by 100% of trend indicators and 65% of oscillators. At the same time, the remaining 35% had already been giving signals the European currency was oversold. If you look at the EUR/USD quotes, they accurately reflect this distribution of forces. At first, the pair went down, and then, starting from the midweek, it moved into a sideways trend, turning the 1.0800 horizon into either support or resistance. The divergence with the readings of many oscillators, such as the MACD, gave long position holders hope for a trend reversal. However, this did not happen, the fall only stopped. And only at the very end of the five-day period, the pair made a sharp jump up, finishing at 1.0848 and thus zeroing out the total result of the week;
  • GBP/USD. The UK contributed to the weakening of the EU economy as well: after Brexit, the European Union budget has a deficit of €75 billion, and no one seems to know how to make up for such a serious loss. The British currency itself, unlike the euro, can be said to have stabilized against the dollar and, since the last decade of November 2019, has been moving along the 1.3000 line. The volatility is still quite high (220 points last week), but the pair repeatedly returns to this support/resistance zone.
    The bears repeatedly tried to push the British defense in February, lowering the pound below the 1.3000 horizon. The pair even reached the local bottom at 1.2850 last week, but... then it turned around again, rushed up and finished the working week at 1.2960;
  • USD/JPY. Giving the forecast for the past week, the vast majority of experts (70%), supported by graphical analysis on H4 and D1, had turned their views to the north. And they turned out to be right: the pair not only broke the landmark level of 110.00, but even without noticing several levels of resistance, soared to the height of 112.20, reaching the highs of April 2019. The main reason is called a sharp drop in interest in the yen as a safe-haven currency, against the background of an improvement in the situation with the coronavirus and, as a result, a turn of the markets towards riskier assets. The actions of the Chinese authorities to support companies affected by the epidemic also played against the yen.
    After the pair took the height of 112.00, a correction occurred, and the final chord of the week sounded at the level of 111.60;

As for the forecast for the coming week, summarizing the opinions of a number of experts, as well as forecasts made on the basis of various methods of technical and graphical analysis, we can say the following:

  • EUR/USD. Global markets are saturated with liquidity, including major currencies. It seems that Central banks know no other way to support the economy than to pump it with cheap money. The US Federal reserve spends $ 60 billion a month to buy bills, the ECB buys securities for 20 billion euros, and the Bank of Japan – for 80 trillion yen. Regulators in other countries are not far behind. And, at the moment when this money appears on the markets, we can observe fluctuations in prices in one direction or another.
    The dollar today is a cross between a classic protective and a risky asset. This is due to political factors, the state of the US economy, and the actions of the Federal reserve, whose ability to reduce interest rates is far from exhausted, in contrast to its European and Japanese "counterparts".
    All this allows 70% of analysts to count on the continued growth of the US currency and its reduction at least to the zone of 1.0750. It should be noted that the survey was conducted before the pair's short-term rally to the north on Friday just before the markets closed. It is also important that when moving to the forecast for March, the same number – 70% – of experts expect the pair to return to the level of 1.1000.
    As for the indicators, if the vast majority of them were painted red in the morning of Friday, February 21, the situation changed radically by the evening and 70% acquired a green color on H4. On D1, however, the advantage still remains with the the bears: 75% of trend indicators and oscillators still point to the south. Nearest supports are 1.0800 and 1.0775;
  • GBP/USD. The Pivot Point of the last three months can be considered the 1.3000 horizon, but starting from January 2020, there has been a certain increase in the bearish sentiment. That is why 55% of experts expect that the pair will once again test the previous week's low of 1.2850 and, if successful, will fall another 80-100 points lower. The remaining 45% of experts are expecting the pound to strengthen and the pair to rise to the 1.3000-1.3070 zone. The next target is 1.3120.
    There is a complete discord among the indicators on D1 at the end of the week, but on H4, 60% of trend indicators and oscillators indicate the growth of the pair.
    The compromise option is offered by graphical analysis on D1, which draws a decline at the end of February to the level of 1.2685, and then a return in the first decade of March, first to the level of 1.3000, and then to the height of 1.3200;

  • USD/JPY. It is clear that the vast majority of indicators look up. However, about 15% of oscillators are already sending signals about the pair being overbought. Graphical analysis on D1 shows that the pair will stay in the range 111.25-112.00 for some time at the beginning of the week, after which it will go up to the zone 112.40-112.70.
    As for experts, 75% believe that the pair will definitely return to the 109.65-110.25 zone, although this may take two to three weeks. The remaining 25% of analysts are expecting the pair to rise above the 112.40 mark, the target is 113.70;

NordFX EU


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