Chart of the Day EURUSD

EURUSD Potential Reversal Zone – Probable Price Path

The market remains focused on the rapidly rising number of new COVID-19 cases in several Southern and Western US states. The Texas Governor announced last night that he would “temporarily pause” plans to further reopen the state’s economy amidst what he termed a “massive outbreak” in the region. The state cancelled all elective surgery as Houston, the biggest city in the state, reached capacity with ICU beds. This follows similar moves in North Carolina, another affected state, which said the previous night it would pause its re-opening for three weeks and ordered masks to be worn in public. At a national level, the US reported its highest single day rate of new COVID-19 cases on Wednesday, at over 45,000. The re-acceleration in cases raises the risk that the reopening process for the US economy is interrupted, even if officials don’t resort to widespread lockdown measures this time, and the economic recovery proceeds slower than-expected. This is the key concern weighing on market participants.

EUR: The economic data of the euro zone has seen improvement, and short-term support may continue to support the performance of the euro. The market continues to pay attention to whether the epidemic will turn around and deteriorate. The German IFO Business Confidence Index continued to rebound and was better than expected, but the market worried about the worsening of the epidemic, coupled with the US Trade Representative’s proposal to impose tariffs on exports of US$31 in France, Germany, Spain and the United Kingdom, dragging the euro down. The European Central Bank issued the minutes of the interest rate meeting in June. Although the general members support continued bond purchases, some members have reservations about expanding the scale of bond purchases and believe that there is a reason to adopt a more cautious approach. On the other hand, the European Central Bank plans to establish a new euro liquidity arrangement for non-euro central banks.

USD:  US regulators will ease some of the restrictions contained in the so-called ‘Volcker rule’, which will free-up capital for US banks. US financials rose almost 2% overnight, helping to prop up the overall index. The Fed will release its regular ‘stress tests’ on US banks after the market close this morning, which will include scenarios for how banks’ capital levels might be affected by several pandemic scenarios. The results of the stress tests influence whether regulators permit banks to pay dividends to shareholders. Economic data has been mainly second-tier and had little impact on the market. Jobless claims fell again last week, but by less-than-expected and they remain at very high levels. More encouragingly, continuing claims (which take account of those no longer requiring unemployment assistance) fell by more than expected. Durable goods orders were also stronger than market expectations, but inflated by volatile aircraft orders. Manufacturing remains weak, although it is gradually improving. 

From a technical and trading perspective, on the intraday H4 chart the euro is attempting to hold ascending trendline support, in what appears to be a bullish consolidation pattern versus th prior impulsive five wave advance as buyers continue to be attracted at current levels, watch for a bullish H4 close here which should see bullish exposure rewarded through 1.1235, initially looking for a test of 1.13 enroute to the primary upside objective of a 1.15. On the day only a close through 1.1145 would negate the bullish thesis opening a deeper corrective phase to test bids back towards 1.10 

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