| EUR/USD. Preview of the new week. Will the euro continue its upward march next week? What factors will be most important? 2021-02-14  Tomorrow, a new trading week will begin. In this article, we will try to understand what we can expect from the euro/dollar pair. First of all, I would like to focus on the technical picture. Often, "technology" conflicts with "foundation" or "macroeconomics". For example, there is a buy signal and an upward trend, however, the Nonfarm Payrolls come out and the markets turn sharply in the opposite direction. However, this was the case before the pandemic. With the arrival of the coronavirus epidemic, a lot has changed in the world and the foreign exchange market. In particular, macroeconomic statistics are mostly ignored, and meetings of central banks and important speeches of the heads of these banks are infrequent. So it turns out that it is now possible to rely mainly on technology when making trading decisions. What about the technique? As we have already said, on the 24-hour timeframe, the pair's quotes rebounded from the 50.0% Fibonacci level, as well as from the lower border of the Ichimoku cloud of the Senkou Span B line. Thus, in the long term, the trend remains upward and the chances of updating the 2.5-year highs are high. As we have already said, "macroeconomics" has almost no effect on the movement of the pair. Accordingly, only the "foundation" remains. The "foundation" now consists of only two factors (in our opinion). This is "a factor of multi-trillion dollar packages of measures stimulating the American economy" and "a factor of the balance of forces of the American and European economies". Even though the US economy is recovering more quickly than the European one, it is the euro currency that continues to rise in price (if we take a long-term perspective). This is because in the second quarter of 2020, the American economy lost 31%, and the European economy lost 12%. Accordingly, the US economy is catching up with the European one, however, it has not yet caught up. And of course, the first factor of the "stimulus packages for the US economy". Recall that only during 2020, the US Congress approved incentive programs for $ 4 trillion. Also, the Fed buys at least $ 120 billion worth of securities from the market every month. That is, the economy is actively pumped with money. Accordingly, this very money is becoming more and more, respectively, the exchange rate of "this money" (in our case, the dollar) is falling. Some might say that the European Union also has its programs to stimulate the economy, however, they are much less voluminous. For example, the PEPP emergency program is worth 1.85 trillion euros. However, it began to operate last year and is still not completed. This means that out of 1.85 trillion euros, no more than 900 billion have been poured into the economy. The European government does not practice any "helicopter money" packages. There is no distribution of money to the population as compensation and assistance due to the pandemic. The 750 billion euro economic recovery fund, which provides grants and loans to the most affected countries, was approved with heartbreak, but at the current date, it has not even been formed. Thus, much less money is poured into the European economy, so the euro currency has become more scarce in the last year compared to the dollar. Hence its growth. As for the second factor, the "ratio of economies": here we still have to pay attention to the macroeconomic statistics. Although it does not have any immediate effect on the movement of the pair. Next week, the European Union will publish reports on industrial production, changes in GDP, indices of business activity in the services and manufacturing sectors, as well as the ZEW index of business sentiment. Of all the indices, we will be most interested in the index of business activity in the service sector, because the acceleration of the EU economic recovery also depends on when this sector begins to recover after the winter lockdown. Christine Lagarde focused on the weak state of the service sector this winter, so we also drew the attention of traders to this report. According to forecasts, the index will remain below the level of 50.0. Thus, we will not yet be able to state the beginning of the restoration of this sphere. Industrial production in December is expected to decline by 0.4%-1.0% every month. Also bad. The GDP report predicts a decline in the fourth quarter by 0.7% in quarterly terms and 5.1% in annual terms. Thus, the statistics from Europe next week may greatly disappoint market participants. Consequently, the US economy will continue to catch up with it, however, it will probably not catch up in the near future. Therefore, traders should simply fix the fact that the European economy continues to stall. No important speeches are scheduled for next week. Thus, after fairly strong growth of the pair this week, next week we may see some semblance of consolidation. This will not necessarily be a downward correction, however, it will probably be a movement inside the Ichimoku cloud with a continuing upward slope. On the 24-hour timeframe, the pair needs to overcome the Kijun-sen line to count on the continuation of the march to the north. We do not see any reasons why the US dollar may strengthen next week. These may be technical reasons, but the dollar has only recently completed a month-long round of strengthening. Therefore, now a new round of its fall is more likely.  Trading recommendations for the EUR/USD pair: The technical picture of the EUR/USD pair shows that the pair on the 24-hour timeframe bounced off important supports in the face of the Senkou Span B line and the 50.0% Fibonacci level. Thus, a new round of upward movement is expected. And as long as the price is not fixed below the Senkou Span B line, this option will be the main one. Thus, on the 4-hour chart, it is now recommended to trade for an increase. The pair on Friday began a round of correction but bounced off the Kijun-sen line, which may mean the end of the correction and the resumption of the upward trend. Accordingly, until the price is fixed below the critical line on the 4-hour timeframe, the upward trend continues and we should consider trading for an increase with the targets of 1.2139 and 1.2229 and up to 2.5-year highs. GBP/USD. Preview of the new week. UK inflation is the most important report of the week. 2021-02-14  The British pound continues its carefree growth and does not take into account most of the factors that should have long ago contributed to the beginning of at least a downward correction. This week, the pound/dollar pair has increased by another 150 points. The most important thing is that the almost recoilless upward trend persists. And this is the main conclusion that we can make after analyzing all the factors. The British economy, which continues to experience difficult times, is slowly beginning to recover from the crisis. This is evidenced at least by the positive GDP in the fourth quarter. Although the increase was small, it is still better than the next reduction that traders were waiting for. However, if GDP grew slightly in the fourth quarter, then this value is not final and other macroeconomic indicators leave much to be desired. For example, the unemployment rate or the index of business activity in the service sector. Thus, we can only draw the same conclusion as for the euro currency. The main factor in the growth of the British currency remains the huge amount of trillions of dollars poured into the American economy using the "turn on the printing press" method. We don't see any other reasons. But even in this scenario, it is hardly possible to conclude the logic of the current increase in the pair's quotes. Recall that the upward movement is almost recoilless. And this is always strange and resembles the growth of bitcoin or oil, that is, in other words, speculative growth. When a currency or instrument grows, it is not because there are specific reasons, but because more and more traders want to join the "easy trend" and make "easy money" from it. And the most interesting thing is that there is nothing else to do. The trend is strong, why trade against it now? But it is precisely this logic that leads to even more unjustified growth of the British currency. No major reports will be published in either the US or the UK until Wednesday next week. Only on the third trading day of the week, the consumer price index in Britain will be published, and in the United States – changes in retail trade, changes in industrial production, and the minutes of the Fed from the last meeting. British inflation is interesting. In December, its value was 0.6% y/y, but now experts expect it to slow down to 0.4%-0.5% in annual terms. Core inflation may fall from 1.4% y/y to 1.2%-1.3% y/y. Thus, this report may become the next in a series of weak ones from the Kingdom. In the United States, retail sales may grow by 1% in January and industrial production – by 0.5%. In principle, if these figures come true, it will be very good. Unfortunately, we still do not expect that the statistics will be worked out by the markets. Therefore, the maximum that can be done with it is to check the box and conclude that the British economy continues to stall, as well as the European one. On Thursday, the standard report on applications for unemployment benefits in the US will be published, and on Friday – retail sales in the UK and business activity indices in both countries of interest to the pound/dollar pair. We are most interested in the report on British business activity in the service sector. It has been experiencing big problems in recent months due to winter "lockdowns". Thus, it is the service sector that is most hindering the economic recovery. If the business activity index starts to grow from the current 39.5, it will be a step in the right direction. However, the pound is still growing now, so it simply does not need the help of macroeconomics. Based on all of the above, it follows that the not quite logical upward movement is likely to continue next week. The latest COT report showed a strengthening of the "bullish" mood. The factors that supposedly led the pound to the current peaks have not gone away. From a technical point of view, the upward trend is also maintained and there are not even minimal hints of a correction. Thus, recently, nothing has changed at all to wait for a change in the trend. We're only worried about one thing. The current growth of the British currency is indeed very similar to the "speculative" growth. For example, the euro currency, which is affected by the same "American factors" is adjusted from time to time. Thus, the pound may continue to grow, but sooner or later there will be a massive closure of profitable long positions, as speculators will want to exit the market. Thus, a rather strong and sharp fall can begin, which is important not to oversleep. Therefore, traders are advised to continue to trade for an increase, as the upward trend persists. What is the point of trading against the trend? However, it is also recommended to remember that the upward trend may end and be prepared for this. At the same time, it is unlikely that this completion will coincide with some fundamental event, such as a speech by the head of the central bank or a meeting of this very central bank.  Recommendations for the GBP/USD pair: The pound/dollar pair continues to trade near its 2.5-year highs, regularly updating them. The "swing" on the 4-hour timeframe seems to have stopped and now there is fairly strong growth in the pair. On Friday, traders tried to start a downward correction, however, it ended very quickly, near the Kijun-sen line. Thus, the markets failed to consolidate the pair below this line, therefore, the upward trend should be continued with the targets of 1.3876 and 1.3996. So far, we see the $ 1.40 level as the boundary target point.
Author's today's articles: Stanislav Polyanskiy  Graduated from Odessa State Economic University. On Forex since 2006. Writes analytical reviews about international financial markets for more than 3 years. Worked as a currency analyst in different finance companies for a long time including the biggest companies of Russia and Ukraine.
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