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The appreciating sterling is now being followed by the euro, which has long been in the correction stage. Recently, EUR hit 1.2349, the peak of the medium-term trend. Are speculators revising their portfolios in favor of EUR?
A series of stats on the UK economy and news on the success of the vaccination program have made it clear that the media is shaping speculators' opinions that are fundamentally different from the general view.
Now Bloomberg journalists have boosted demand for the euro, telling speculators that vaccination is gaining momentum across Europe, and investor optimism about the economic recovery is growing almost daily.
A familiar scheme, isn't it? Will speculators pick a new favorite?
If we proceed from the analogy with the euro, then why not? Unlike the pound sterling, it has been in a correction stage since the beginning of the year. Recovery relative to the corrective movement 1.2349 ---> 1.1950 is the primary task for speculators who will cope with it without too much effort if the media continues to stimulate their actions.
In this situation, not only speculations on the euro interests traders but also the reverse side of the currency pair. So, how long have you analyzed the dollar index (DXY)? The prospects for its recovery in January gave hope for a rebound from the lows, but since February, the index has again embarked on a downward trend.
In simple words, before updating the local low, the index has only 0.5% left, which slightly scares dollar investors, who just recently had to sell the greenback globally.
The question arises: is everything so good in the US economy, or are investors just wary of the large-scale fiscal stimulus programs that are so actively promoted in the White House?
Time will tell, we only have to follow the flow of speculative interest, since strategic positions based on fundamental analysis are not yet so relevant in a greedy market.
What happens on the trading chart?
Speculators who are working to inflate the euro rate, managed to overcome the resistance area of 1.2160/1.2190 and are already holding the quotes above 1.2200 on a four-hour chart. This step is considered the primary signal of a possible prolongation of the medium-term trend. In simple words, the development of a correction of more than 50% already indicates that the trading interest has changed, and market participants are ready to follow a different path.
If we go back to the pound sterling, we will remember how the quotes stubbornly followed the peak of the trend, even though the sterling has been overbought for a long time. The euro overcame the overbought stage due to the recent correction, and although we have global economic problems throughout Europe, from a technical analysis point of view, there is still a chance for an upward move and a prolongation of the trend in the market.
Expectations and prospects
Examining the trading chart relative to the current day, we see that the quotes follow in the area of January 8, which means that the local maximum is slightly more than 100 points, which is not so much.
It is not worth expecting a quick update of the mid-term trend peak (1.2349). The natural basis associated with a rebound and a reduction in the volume of long positions can still overcome the speculative mood in the market.
Thus, be prepared for a reversal in trading sentiment in the area of 1.2300/1.2350 upon moving along an upward trajectory.
The prospects of a further upward trend will resurface after the price has held above 1.2350 in the daily period. In this scenario, one should not forget that a new upward price step will not just update the local maximum, it will lead to a convergence with the 2018 peak, and this is no longer such an easy price area for speculators.
What is happening in the market in terms of indicator analysis and market dynamics?
Analyzing different sectors of time frames, we see that due to the recovery process relative to the corrective move, the technical instruments have passed into the buying phase, which is confirmed by the dynamics on the trading chart.
In terms of market volatility, an acceleration is recorded, but only relative to the current day, since before that we had an average price fluctuation. Acceleration coincides with the breakdown of the resistance area.
Key levels
Resistance zones: 1.2350 **; 1.2450 **; 1.2550 ***; 1.2825.
Support zones: 1.2190 *; 1.2000 ***; 1.1890-1.1900-1.1920 **; 1.1810 *.
* Periodic level
** Range level
*** Psychological level
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