General analysis EURUSD for 20.05.2022

Current dynamics

The single European currency had a rather good week. Several important fundamental factors are contributing to the strength of the pair. After reaching its lowest level in 5 years, EUR/USD managed to recover and the pair is now consolidated above the strong psychological level of 1.0500. Yesterday the pair reached the level of 1.0600, but after a brief consolidation, it slowed down amid profit taking on short-term speculative buying positions.
Meanwhile, US stock indices are moving in a sustained downtrend. NASDAQ, Dow Jones, S&P 500 all updated yearly lows, while financial reports of US companies failed to meet expectations. The fall of US equity market led to capital outflows and had a negative impact on treasury bond yields and the US currency. As a result, ten-year bond yields declined by 11 points to 2.778%, thirty-year bond yields declined by 9 points to 2.983%, and the dollar temporarily lost its safe haven status. Of course, slump in Chinese economic activity amid new COVID-19 outbreak continues to provide moderate support to USD, however the Fed continues to ignore problems in US equity market, which increases risks to the US economy in the first place.
At the same time, ECB rhetoric is becoming increasingly hawkish, providing meaningful support for EUR. The Governing Council is united in its desire to raise rates in July. Head of the Bank of Netherlands Klaas Knot is proposing to increase rates by 50 basis points at once, which just recently seemed like a fantastic scenario. European regulator is likely to be more restrained but market considers a possibility that key rate will rise by 35 basis points. In addition, ECB minutes from April's meeting suggest not only concerns about high price pressures, but also the desire of European regulator's officials to speed up monetary tightening
No significant publications are expected from either side before the end of this week's trading. Speeches by Bundesbank President Nagel at 13:45 (GMT+2) and ECB official Lane at 14:00 (GMT+2) may have a moderate impact on the pair's dynamics.

Support and resistance levels

On the 4-hour chart, the instrument is correcting in the upper range of the Bollinger Bands. The indicator is directed upwards and the price range has contracted, indicating the presence of corrective dynamics. Histogram of MACD is in the positive zone, preserving a buy signal. Stochastic has left the overbought area, forming a sell signal.

• Support levels: 1.0310, 1.0360, 1.0460.
• Resistance levels: 1.0600, 1.0695, 1.0770, 1.0845.

Trading scenarios

• It is possible to open long positions above the level of 1.0615 with a target of 1.0750 and a stop-loss at 1.0530. Implementation period: 2-4 days.
• Short positions should be opened below the level of 1.0530 with a target of 1.0425 and a stop-loss at the level of 1.0580. Implementation period: 1-3 days.