19.02.202001:01 Forex Analysis & Reviews: EUR/USD. Reconnaissance or price low? Bears entered the seventh figure for the first time since 2017

The euro-dollar pair continues its downward track: for the first time since March 2017, the price tested the seventh figure, demonstrating the dominance of the bearish mood. Both yesterday and today, EUR/USD buyers made timid attempts at corrective growth - but as soon as the pair rises by several dozen points, it immediately attracts sellers who are pulling the euro to the bottom with even greater force. Actually, at what level is the bottom of the price for the pair - the question is open. According to many experts, the seventh figure will be "too tough" for bears, because it is one thing to test the area of long-term lows, and it is another thing to gain a foothold. That is why some currency strategists recommend that their clients refrain from short positions, despite the obvious dominance of the downward trend.

In my opinion, the EUR/USD bears have not tested the seventh figure for the last time - if European statistics continue to disappoint, the pair will be under constant pressure, limiting the scale of correction rebounds. But you also need to understand that the lower the pair, the higher the probability of catching the bottom of the price. Even today's price dynamics of EUR/USD signals the existence of such risks. Momentum hitting a low of 1.0786, the pair reversed and returned to the eighth figure just as quickly. This suggests that many traders in this price area are in a hurry to take profits, thereby slowing downward movement. In addition, the pair is already attracting buyers who are also in a hurry to buy EUR/USD at a bargain price on such lows.

Such a precarious position of the bears will remain at least until the end of this week. Macroeconomic statistics that are negative for the euro will push the pair down to local support levels, but the risk of a price rebound will be high in each case.

Today, the euro was pressured by numbers from the ZEW Institute. In particular, the mood index in the business environment of Germany fell almost three times: if it reached 26.7 points in January, it then fell to 8.7 points in February. And although the indicator remained above the zero mark, the dynamics itself disappointed investors. Experts expected a negative trend, but according to their forecasts, the indicator should have decreased by only 20 points. In Europe as a whole, this indicator also came out much worse than forecasted values - after January growth to 25 points, it fell to 10 (with a forecast of decline to 21 points).

After a recent surge of optimism, when for the first time in many months the indicators in Germany and the EU as a whole turned out to be above zero, this dynamics looks depressing, and this fact had a corresponding effect on the single currency. On the other hand, a certain pessimism was predictable, however, experts could not accurately determine its scope. The factor of coronavirus, dovish Lagarde's rhetoric, slowdown in inflation, weak German data - all these circumstances a priori could not but affect the mood of entrepreneurs. Therefore, the pair's bears used the ZEW numbers as a reason for the downward momentum today. At the same time, any definite conclusions (for example, regarding the prospects for the monetary policy of the ECB) cannot be drawn from such data.

The growth of the US currency today was fueled by good statistics from the United States, however, of a secondary nature. Empire Manufacturing's manufacturing index, which is based on a survey of manufacturers in the New York Federal Reserve Region, more than doubled its forecast, reaching 12.9 points - this is the strongest result since May last year (experts expected to see it at 5.1 points) . It is worth recalling that the ISM manufacturing index was stronger than forecasts in January and reached the highest level since July last year - 50.9 points. That is why today's seemingly minor release provided significant support to the dollar index, which jumped to the level of 99.33.

The prevailing fundamental picture made it possible for the EUR/USD bears to temporarily cross the line: breaking the support level of 1.0810 (the lower line of the Bollinger Bands indicator on the monthly chart), the price tested the seventh figure. But due to the activation of buyers, the pair could not stay in the area of multi-year lows. In addition, the fact that the profitability of 10-year-old Treasuries declined and was negatively reflected on the dollar (the yield fell to 1.505% during the US session).

All this suggests that sellers will still try to enter the area of the 7th figure in the short term. But if we talk about the medium and even more long-term period, then the situation here does not look so clear. Most likely, EUR/USD will form a price low in the 1.0750 area (with possible testing of lower values), after which the pair will begin to be in demand, due to its oversold condition, provided there are no significant news drivers for further large-scale decline.