General analysis EURUSD for 25.05.2022
Current dynamics
The EUR/USD pair strengthened on Tuesday, making new May highs. Eurozone business activity data released yesterday was expectedly weak. At the same time the growth of German manufacturing PMI in May from 54.6 to 54.7 basis points provided support to the pair. Such market reaction to mixed macroeconomic statistics proves that investors are expecting decisive action from the European regulator. At the same time it should be noted that after reaching the local highs speculators again closed the profit on long positions, which resulted in downfall of the pair today.
The main reason of the single European currency strengthening in the second half of May is the verbal interventions of the ECB officials. First of all it should be noted Christine Laggarde who let the markets know that the regulator is ready to speed up the pace of winding down the quantitative easing measures. In addition, the Fed chief said that the key rate will stop being negative in the third quarter of this year, and members of the Governing Council were even more forthright in their statements. Investizo had previously written that the governor of the Bank of the Netherlands had proposed a 50 basis points tightening at one of the forthcoming meetings. His Austrian and Latvian colleagues also supported Klaas Knot's initiative. However, Christine Lagarde and François Villarrois, Governor of the Bank of France, did not support the initiative, removing the aggressive strategy from the current agenda. Villarrois and Lagarde probably did the right thing, as price pressures are not at all shaped by growing demand for goods and services and therefore the ECB should not rush into action. However, Christine Lagarde has shown strategic flexibility by saying that she doesn't rule out a scenario with a 50 point hike.
AT the same time, all indications are that the Fed has overestimated its options by embarking on a course of aggressive monetary policy. Macroeconomic statistics in the USA continue to deteriorate. Business activity is slowing to a four-month low, the housing market is weakening, labor shortages triggered by massive stimulus measures are increasing uncertainty in the US economy. At the same time the continuing discussion of a possible recession adds pressure to the stock market, as evidenced by the weakness of US corporate reporting. At the moment market participants justifiably believe that the Fed will need a pause in the process of monetary restriction.
Today at 20:00 (GMT+2), the minutes of the Fed's last meeting are expected to be published. Tomorrow at 14:30 (GMT+2), the US will release GDP and labour market data.
Support and resistance levels
On the 4-hour chart, the instrument is testing the Bollinger Bands moving average, which is a key support level. The indicator is directed upwards and the price range remains wide, indicating that the uptrend continues. The MACD histogram is in the positive zone, preserving a buy signal. Stochastic entered the oversold area, a strong buy signal is expected within 1-2 days.
- Support levels: 1.0375, 1.0440, 1.0540, 1.0605,1.0650.
- Resistance levels: 1.0705, 1.0770, 1.0845.
Trading scenarios
- Long positions can be opened above the level of 1.0705 with a target of 1.0775 and a stop-loss at 1.0655. Implementation period: 1-2 days.
- Short positions should be opened below the level of 1.0635 with a target of 1.0580 and a stop-loss at the level of 1.0665. Implementation period: 1-2 days.