US dollar, which seemed to convince everyone in its weakness, returned this week across the board and gained against all actively traded currencies. And yet, there was no specific USD related driver for such development— except for the large Australian currency sale-off, New Zealand dollar and the euro as well. Foreign exchange markets have reached important technical levels, FX instruments are somewhat oversold, and dollar is overbought. On this background, it is logical to expect a corrective pullback throughout the FX market with the weakening dollar. But these are just our expectations. Global economic risks are back to the agenda, risk-off mode plays the main role and USD dollar can strengthen for a very long time. Looking into the future, the political decision from Bank of England, and the subsequent reaction of the British currency will become an important event in the calendar. The predicted weakening of the pound is another driver for strengthening the American currency.
EUR / USD
The decline in the European currency continues on the background of medium-term expectations for the leading European economy slowdown. Under the new conditions, the market will expect the ECB to return to a more dovish monetary policy, which, however, was announced by Draghi at the last speech. Today, we will receive another economic report from ECB. Technically, three days of correction so far is within the scope of the corrective pullback from the last growth impulse 1.1300-1.1515. Only a breakthrough and consolidation below 1.1300 will give us the right to say that the market is moving out of the medium-term sideway range and moving on to the medium-term negative trend. It may take more than one week with all the necessary market pullbacks, reversals, consolidations. For the time being, we are talking about the nearest expectations - and the intrigue is that the market is well oversold. Rather, sooner than later, sellers will fix profits pulling the quotes higher. In this sense, we observe the mark 1.1335 and further the strategic area 1.1300. If someone has opened longs in the 1.1395 area, then this will be a good opportunity to average and recover the loss. However, let's see how events will develop. We keep expectations of technical rollback to at least 1.1400.
Trading recommendations - longs 1.1335, 1.1300
The British Pound is testing the mid-term side channel support line. It is clear that this week the fundamental factors are entirely against the British currency. It is expected that the Bank of England will not make any changes, and in general, everyone agrees that there is no particular flexibility, since the uncertainty regarding Brexit continues to put pressure on the UK economy and on the British currency. However, technically the situation would not be so hopeless if the market could keep above 1.2900. We wrote yesterday that the area 1.2900-1.2945 is a strong support area. Breakthrough of this area will send quotes down to the zone of 1.2800. However, the market is oversold and open long positions in the current environment is dangerous.
Trading recommendations - out of the market
In current market turbulence, the gold market seems to be the island of clarity and stability. Finally, yesterday, the players broke the useless narrow consolidation above the 1310 mark and brought clarity, dropping the quotes down to the strategic area of 1300. A rare and interesting case occurred on the market, when clearness of longs necessities at a certain point should not be intimidating. Opening long positions near 1310 is what we talked about throughout entire January. However we need to be careful with your close stop-orders as the market can cut them down before moving higher to 1350.
Trading recommendations - longs in the area 1300-1297