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June 6, 2020

First, a review of last week’s events:

  • EUR/USD. Beginning May 25, the euro paired with the dollar rose in price for nine consecutive afternoon sessions, which, according to Dow Jones estimates, was the longest period of continuous growth since April 2011.
    The ECB's decisions allowed the European currency to soar to its highest level since March 20, reaching the height of 1.1385. Led by Christine Lagarde, the Central Bank has surpassed all market expectations by increasing the Pandemic Emergency Purchase Program (PEPP) by €600 billion to €1.350 trillion. This program will last at least until June 2021, and the proceeds received from the acquired bonds will participate in the process of reinvestment until the end of 2022. The ECB also kept the benchmark interest rate on loans at zero and the deposit rate at minus 0.5%. Thus, the ECB proved to be the only major regulator to continue the policy of quantitative easing (QE) last week, as well as one of the few central banks to undertake similar moves in June.
    According to Christine Lagarde, the QE emergency program should solve two problems at once: to help the Eurozone economy recover from the COVID-19 pandemic and act as a pillar to overcome market stress.
    The euro zone economic reports published this week also played in favor of the euro, they turned out to be optimistic for the most part, and business activity indicators were revised upwards.
    As for the dollar, it began to sink, in part due to the growing appetite for risky assets. And if it was not supported by statistics from the US labor market, the pair would have every chance to paint the tenth daily candle green. However, the unemployment rate fell to 13.3% in May against 14.7% in April, and the number of new jobs outside the agricultural sector (NFP) rose, amounting to +2.509K against a reduction of almost 21 million (-20.678K) a month earlier.
    As a result, the EUR/USD pair finally finished the last day of the working week in the red zone, having stopped at the level of 1.1290;
  • GBP/USD. The British pound follows the euro for the third week in a row. One difference is that the Friday candle of June 05 also turned green on its chart. Starting at 1.2075 on May 18, the pair first breached the lower boundary of the channel 1.2165-1.2650, turning it from resistance to support, then reached its upper limit, and made another jerk to the north on June 05, taking the height of 1.2730 and thus adding 655 points in three weeks. Another correction then followed, and the pair put the final chord at 1.2665;
  • USD/JPY. After a relatively quiet, by the standards of this pair, three weeks, against the background of the escalation of the us-Chinese conflict, it sharply went up in the past five days.
    Relations between the two countries deteriorated after China approved national security laws in Hong Kong and Macau last month. The last step was Beijing’s decision to ban the United Airlines and Delta Air Lines from resuming flights to China, in response to which Washington, starting June 16, suspended Chinese flights to the United States.
    And, in contrast to the euro and the pound, in relation to which the dollar was losing its position, it gained 180 points against the yen in five days. The maximum range of the pair’s fluctuations was 245 points, and on Friday June 5, it almost reached the symbolic height of 110.00. But it could not take it, and the pair ended the trading session at 109.60;

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

  • EUR/USD. Despite the impressive two-week growth of the euro, the continuation of the uptrend is in question. On the one hand, analysts of a number of leading commercial banks - ABN Amro, JP Morgan, Banque Pictet & Cie and Nordea - believe that the ECB will expand QE in September-December due to the growth of government debt that needs to be absorbed. But on the other, the differences between the European Central Bank and the German Bundesbank have not disappeared. So, although Christine Lagarde announced that the decision to increase QE volumes was taken unanimously by the Governing Council, according to the Financial Times, Bundesbank head Jens Weidmann warned her that if this continues, the ECB could be accused of violating EU law that strictly prohibits cash financing of governments.
    In addition, euro growth will be constrained by expectations of a sharp decline in Eurozone GDP. According to the ECB forecast, the eurozone economy this year will shrink by 8.7% (subject to the second wave of the coronavirus pandemic - by 12.6%), and next year it will grow by only 5.2%. But the US economy, according to Wall Street experts, in 2020 will only drop by 6.6% and recover by 5% in 2021.
    As for the immediate period, 65% of analysts believe that risk appetites will fall, reviving interest in the dollar as a protective asset, and the EUR/USD pair will move south to the 1.1000-1.1100 zone. The next support is 1.0885. Graphical analysis on H4 and 15% of oscillators that give signals about the pair being overbought on H4 and D1 fully agree with this development of events.
    According to the remaining 35% of experts, the bulls still have enough strength to raise the pair to the height of 1.1400, and if successful, to target the March high at 1.1500.
    Of the upcoming events this week, you should pay attention: on Monday 08 June - on German industrial production data, on Tuesday 09 June - on Eurozone GDP, on Wednesday 10 June - on statistics on the US consumer market and on Thursday, June 11 - on the US unemployment data. In addition, on June 10, a meeting of the U.S. Federal Reserve will be held at which a decision on the interest rate will be made. The press conference of the Fed management following the results of this meeting is important;

  • GBP/USD. As the EU's chief negotiator Michel Barnier said on June 05, another round of European Union talks with the UK did not bring significant progress. It was not possible to agree on either fisheries issues or the issue of open and equal competition in trade. As a result, according to Barnier, the parties remained “far from the goal” in terms of social, environmental and tax aspects, on which partnership and the future sustainable development of both sides depend.
    It is also bad that Britons refuse to extend the Brexit transition period, even though the EU is willing to extend it by a year or two to allow more time for negotiations. “But if there is no joint decision on such an extension,” said Michel Barnier, “the United Kingdom will leave the single market and the customs union in seven months - December 31 this year.”
    Such intractability of the UK against the background of its economic problems led to the fact that none of the experts this time did not vote for the continuation of the bullish rally. One half of them spoke in favor of a sideways trend, the second - for a stronger dollar and a drop in the pound.
    It is clear that 100% of the trend indicators at the time of making the forecast are still colored green, but among the oscillators, 15% on both timeframes indicate overselling of the pair, which is a fairly strong signal to turn the trend down.
    Graphic analysis on H4 also points south, and on D1 it draws lateral motion within 1.2570-1.2845. Support is at the levels of 1.2465, 1.2365 and 1.2160, resistance is 1.2725, 1.2845 and 1.2950.
    As for the release of macroeconomic statistics, in addition to the above for the dollar, of interest are data on industrial production and GDP of Great Britain, which will be released on Friday June 12;
  • USD/JPY. The indicator readings are exactly the same as for the GBP / USD pair: both on H4 and on D1, 100% of trend indicators and 85% of oscillators are on the green side. The remaining 15% went to the red side and signals that the dollar is overbought.
    Among analysts, not everything is so clear. Only 30% of them voted for the pair's growth and consolidation above 110.00, and 70%, supported by graphical analysis on H4, are waiting for it to return to the zone 107.00-108.00;

NordFX EU


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