Good day, dear colleagues!
As noted in yesterday's article on EUR/USD, the main event on Thursday was the decision of the European Central Bank (ECB) on rates and a press conference of the head of this department, Christine Lagarde. Well, let's sum up this important event.
The assumptions of some experts that the ECB will reduce the deposit rate by 10 bps were not justified, all rates remained at the same levels: the main one at zero, the deposit rate minus 0.5%, and the margin rate of 0.25%.
Forecasts of an increase in the volume of bond purchases by 250 billion euros also turned out to be far from reality. The ECB did increase the PEPP program, only by a much larger amount, which amounted to 600 billion euros. Thus, the volume of the Pandemic Emergency Purchase program (abbreviated PEPP) with the light hand of the ECB has grown from 750 billion to 1 trillion 350 billion euros. A truly unprecedented volume of bond purchases! At the same time, the term of this anti-crisis program has been extended until the middle of next year, and if necessary, until the crisis caused by the coronavirus epidemic is completely over. Let me remind you that earlier this program was planned to be held until the end of this year.
The significant increase in PEPP volumes and the extension of the program's duration clearly indicated the unprecedented damage that the European economy has suffered from COVID-19.
At her press conference, ECB President Christine Lagarde expressed hope that the economic crisis has reached its bottom and a slow and gradual recovery is now expected. The strength of the negative consequences of the COVID-19 pandemic is eloquently indicated by the downwardly revised economic forecasts of the European Central Bank.
As stated by Christine Lagarde, the pace of economic contraction in the 2nd quarter of this year will be very significant, and the economic recovery will begin only in the third quarter. Annual forecasts for Eurozone GDP have been significantly lowered. If in March the annual forecast was + 0.8%, now it is expected that by the end of this year, GDP will decline by 8.7%. The forecast for inflation has also been significantly lowered. Back in March, inflation growth was expected at 1.1%, but now, according to the latest data, inflation in 2020 will grow by only 0.3%. As for the news from overseas, yesterday's data on the number of initial and repeated applications for unemployment benefits again exposed its growth, which took place last week. We will get a clearer and more accurate picture today when at 13:30 London time), the US labor department will release official data on employment change in the non-agricultural sector of the economy, unemployment, and growth in average hourly wages. These three indicators are the most important and significant for market participants. I dare to assume that it is the labor statistics from the United States that will affect the results of the current week's closing.
Daily
In the meantime, the pair continues to grow rapidly. At the same time, I note that yesterday's ECB economic forecasts and Christine Lagarde's speech could have been reacted to in different ways. In such situations, the market usually chooses to move in the current direction, which was done. The highs of yesterday's trading were shown at 1.1361, and the closing price of the session on June 4 was 1.1337.
The daily chart clearly shows that for a long time there was uncertainty and the pair consolidated in the selected price zone. Usually, after such consolidations, a strong price movement begins, most often a trend. This is exactly what is observed. However, the unrestrained growth of the euro against the US dollar can not be infinite or pass without corrective pullbacks. If today's data on the US labor market disappoints investors, EUR/USD will continue its ascent, the targets of which will be 1.1400 and 1.1460. Otherwise, the exchange rate will be adjusted to the area of 1.1300-1.1255. In the meantime, looking at the daily timeframe, there is a strong feeling that the pair intends to test the highs of 09.03.2020, around the psychological mark of 1.1500.
H1
Yesterday's trading recommendations to plan purchases after a decline to 1.1197, 1.1165, and 1.1150 were not without meaning. In fact, on Thursday, the pair fell only to the first designated level and already from 1.1194 turned to continue the rise. Such minor pullbacks indicate the strength of the trend, in this case, the upward one.
At the moment of completion of the article, the pair continues to grow and breaks through the sellers' resistance at 1.1361. If not for today's publication of labor reports from the US, I would recommend buying the euro/dollar on a pullback to this broken level after fixing above 1.1361. At least on the technical side, this idea is quite acceptable. However, you should know how everything will turn out after the release of American labor statistics and what will be the reaction of market participants.
For those who do not want to take risks and spoil their nerves on the last trading day of this week, I recommend staying out of the market and just watch what happens after 13:30 London time. Being out of the market is also a position. Isn't it?
For those who definitely want to trade on such important and significant news from the US today, I recommend opening positions on the trend and buying EUR/USD after short-term pullbacks to the levels of 1.1360, 1.1330, 1.1300 and 1.1280. At the same time, I do not recommend setting large goals. It is better to close all positions before the end of weekly trading and do not move them to Monday.
Have a nice day!
