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#1 01-04-2021 21:34:08

johnedward
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From: Paris - France
Registered: 21-12-2009
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EUR/USD: an oversold scenario at the bottom of the downward channel

EUR/USD: an oversold scenario at the bottom of the downward channel


The euro remained under pressure at the bottom of the downtrend corridor, versus a dollar invigorated by the frantic pace of the vaccine campaign across the Atlantic, and by the presentation of the new plan, this time for infrastructure financing, by Joe Biden yesterday.

From Pittsburgh (Pennsylvania), the American President presented a proposal for an infrastructure plan (known as Build Back Better, or BBB), with an envelope of 2,000 billion dollars over 7 years, without any major surprise as to the envelope. The plan would be financed in part by an increase in corporate taxes. After rising above 1.750%, 10-year Treasuries, the yield on long-term US government bonds, fell back slightly below 1.73%. It must be said that the envelope is rather at the lower end of what was expected. Whatever the case, the plan is ambitious, "historic" according to J. Biden, who detailed investments not seen for more than half a century, notably in roads, railways, the replacement of lead pipes, the switch to green energy, notably in public service mobility services.

According to John Plassard (Mirabaud), "Joe Biden's infrastructure plan holds all its promises and could be adopted before the end of the year. However, its financing (through very high tax increases) should make many people in the Republican camp cringe."

In terms of statistics this week, the focus was on the Eurozone inflation figures, which missed expectations. In the first estimates by EUROSTAT for the month of March, prices in the monetary union rose at an annual rate of 1.3% for the broadest base of products, against a consensus of 1.4%. Across the Atlantic, the release of the ADP private HR survey showed private sector job creation (excluding agriculture) above the 500,000 mark, but slightly below expectations. Today we will have the Non Farm Payrolls report, the federal report on March employment. The ISM manufacturing index is also due at 16:00.

In the meantime, the Euro is finding some air with the confirmation of the final March manufacturing PMI for the Eurozone, at 62.5, slightly above the previous estimate (62.4) from IHS Markit. "The improved business outlook was reflected in a pick-up in spending but also in higher investment as well as inventory rebuilding as companies anticipate stronger demand following the general roll-out of covid-19 vaccination campaigns," comments C. Williamson, Chief Business Economist at IHS Markit commented: "However, the situation remains tight on the supply front, with record increases in supplier delivery times clouding the overall picture. Purchasing price inflation has already reached its highest level for a decade, with the supply of inputs falling short of demand, resulting in the development of a seller's market for many products."

Right now, the pair is trading at $1.1774.

KEY CHART ELEMENTS
The Euro/Dollar currency pair has made an early exit from a wedge, a chart shape that is itself part of a broad bearish channel (black dotted line on the chart below). As the spot is about to make contact with the lower bound of this channel, a short-term bullish contrarian scenario is taking shape. The target is the upper bound. The message delivered is bearish within the channel and bullish in the form of a challenge reaction within the channel.

MEDIUM TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view is positive on the Euro Dollar (EURUSD).

Our entry point is $1.1746. Our bullish scenario price target is $1.1963. To preserve the capital invested, we advise you to place a protective stop at $1.1679.

The expected return on this strategy is 217 pips and the risk of loss is 67 pips.

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