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03.08.202203:29 Forex Analysis & Reviews: Overview of the EUR/USD pair. August 3. Why is there such a fuss about Nancy Pelosi's visit to Taiwan?

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Exchange Rates 03.08.2022 analysis

On Tuesday, the EUR/USD currency pair continued to maintain an upward trend with great difficulty and was located above the moving average line. In principle, after the pair stood between the levels of 1.0132 and 1.0254 for more than three weeks, we can say that the pair is trending. However, it has not managed to gain a foothold above the level of 1.0254. Thus, if there is a minimum upward bias now, it is minimal, and the euro currency cannot extract a large amount of dividends from this upward trend. Thus, the technical picture remains the same as it has been in recent weeks. The euro currency is desperately trying to adjust against the dollar at least a little, but at the same time, it does not get much. It indirectly indicates that there are few buyers of the euro currency on the market, and there are no good reasons to invest in the euro now. Thus, we continue to believe that in the near future, the fall of the euro/dollar pair will resume, and 20-year lows will be updated once again.

It is worth noting once again that two key factors that led the pair to 20-year lows remain relevant and even increase their pressure on the euro. If everything is clear with the "foundation" now (the Fed will raise the rate to the "victorious end" and the ECB from time to time), then geopolitics has deteriorated so much over the past week that it's time to talk about new geopolitical conflicts. Clashes on the Serbian-Kosovo border have been extinguished, but for how long? Recall that the decision of the Kosovo authorities to switch completely to "their" documents has so far been postponed for 1 month. Thus, in a month, the conflict between Pristina and Belgrade may flare up again. Let's talk about the "Taiwan crisis" in more detail.

Relations between Beijing and Washington could seriously deteriorate.

In principle, there is no crisis in Taiwan right now. The problem is simple to the point of banality. China considers Taiwan, which it lost control of back in 1949, its territory. The United States actively supports Taiwan and its independence from China. The Taiwanese would like to gain full independence from China, as their economy allows them to do so. Russia supports China. So much for the geoconflict. However, why was there such a fuss about Nancy Pelosi's visit to Taipei? It should start with the fact that the top officials of the largest states do not come to Taiwan every day and every visit of this scale means something. We studied all the news feeds and summaries, and nowhere was it said the true reason for Pelosi's visit. At the same time, it came to the absurd; even Pelosi's desire to be re-elected for a third term was cited as the reason as if it was necessary to visit Taiwan for this. Therefore, the very first and main conclusion is that Pelosi's visit is not of a public nature and such issues that Beijing would like to stall will clearly be resolved at the meeting with local authorities.

What kind of questions can these be? From our point of view, the answer is simple. If Washington does not insist on declaring Taiwan's independence from China, then we are talking about defense, since it was with Beijing's military exercises near the island that all this "porridge" began. Taipei wants to confront Beijing, actively puts its troops and air defenses on alert, and will not become a puppet territory. Washington is ready to support Taipei, and Beijing, on the contrary, wants to distance the two allies from each other. That is, all of these are ordinary geopolitical games. At the same time, Pelosi will still visit Taipei, because the Chinese authorities cannot forbid her to do so. The conflict, of course, may escalate if Pelosi's plane is, for example, attacked, but we believe that this will be avoided. Taiwan's airspace has already been blocked by local aviation, and Pelosi's plane is accompanied by American fighter jets. Attacking any of them would mean declaring war on Washington. Therefore, we can only wait for the details of this visit, especially since there is nothing else to watch now anyway. There were no macroeconomic statistics on Tuesday.

Exchange Rates 03.08.2022 analysis

The average volatility of the euro/dollar currency pair over the last 5 trading days as of August 3 is 107 points and is characterized as "high." Thus, we expect the pair to move today between 1.0092 and 1.0305. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward movement.

Nearest support levels:

S1 – 1.0132

S2 – 1.0010

S3 – 0.9888

Nearest resistance levels:

R1 – 1.0254

R2 – 1.0376

R3 – 1.0498

Trading Recommendations:

The EUR/USD pair is trying to continue its upward movement, but instead, it is moving flat. Thus, it is now possible to trade on the reversals of the Heiken Ashi indicator between the levels of 1.0132 and 1.0254 until the price leaves this channel.

Explanations of the illustrations:

Linear regression channels – help determine the current trend. If both are directed in the same direction, then the trend is strong now.

Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.

Murray levels are target levels for movements and corrections.

Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.

The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.

Paolo Greco
Analytical expert of InstaForex
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