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#1 28-05-2020 11:55:46

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 2831
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EUR/USD: we're at a critical technical level

EUR/USD: we're at a critical technical level


The hope of economic recovery, with encouraging signs from Asia, continues to be a countering force, given the risks of exacerbated diplomatic tensions between Washington and Beijing. On the currency front, the immediate result is the stabilisation of the eurodollar pair, in a perilous technical situation at the top of the side channel (see below).

This resurgence of tensions is partly conditioned by a so-called "national security" bill on Hong Kong, against the local executive power, following last year's demonstrations.

"President Trump could thus decide on sanctions against Chinese officials or the withdrawal of visas for students," warns Vincent Bay, IG France market analyst. "In addition, Mike Pompeo said he was investigating the status of Hong Kong and its level of independence from China. Otherwise, this could call into question the archipelago's special status, which allows it to benefit from an international status different from that of China and makes it one of the most important financial hubs in the world".

Furthermore, the latest, increasingly provocative "tweets" by the Trump administration threaten to halt subcontracting activities by Chinese companies using US-designed components, and threaten new restrictive rules for US investment in Chinese companies listed on the US stock market.

A week ago, President Trump again raised his voice about China's management of the virus situation, claiming that it bears responsibility for a "global mass killing".

An update on macroeconomic publications: The German Consumer Confidence Index (GfK) came out this month, well in red territory, but slightly above expectations at -19.0, compared to -22.9 last month. The market research institute Gesellschaft für Konsumforschung says that this is the second worst statistical performance since its inception. After last month, of course. On the other side of the Atlantic, the property price index (+0.1% year-on-year) came out well below expectations, while, still on the property front, the S&P Case Schiller index (prices in 20 representative cities) came out at +4.0%. The consumer confidence index (CB), for its part, showed a slightly smaller increase than expected, at 86.7.

To be followed next Wednesday, the Fed's Richmond Manufacturing Index (target -39) and the Fed's Beige Book (at 19:00, London time).

As of now, the eurodollar pair is trading against about $1.1004 on the forex.

KEY CHART ELEMENTS

The eurodollar is in the upper range, a side channel that makes full technical sense, between 1.0786 and 1.1005$. The 100-day moving average (orange line) continues to take a negative direction, while still offering strong chart adversity. We will continue to coldly target the lower end of the range at $1.0785, a level that if broken, would unleash considerable selling energy.

MEDIUM-TERM FORECAST

In view of the key chart factors we have mentioned, our opinion is negative in the medium term on the eurodollar's exchange rate.

Our entry point would be $1.1015. The price target for our bearish scenario is $1.0786. To preserve the capital employed, we advise you to position a protective stop at $1.1061.

The expected return on this forex strategy is 229 pips and the risk of loss is 46 pips.


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