I start almost every analytical review with a discussion of the information flow, and whoever follows the publications has managed to catch the simple idea that the outlook for the US dollar in comparison with the euro and the pound sterling looks pretty good.
I propose in the current review to consider the technical aspect of the possible prospects for the US dollar against the euro and the pound in the short and medium-term.
To begin with, it is worth talking about trends, where, when considering the EUR/USD and GBP/USD currency pairs, there are similarities in directions and cycles.
Since the March 2020 collapse, the euro has embarked on an upward path, resulting in a growth rate of almost 16%, which is over 1,700 points. The growth and rate of price change are stunning, many traders suspected this of a speculative nature, which turned out to be a correct judgment. The upward cycle has acquired the scale and status of a medium-term trend, and the quotes in the first days of January 2021 came close to the peak of 2018, and this, by the way, is the area of the previous medium-term trend.
In simple words, breaking through the 1.2400/1.2500 area, the quotes would automatically be at the levels of 2014, and this is not at all funny, knowing firsthand how many economic problems are enveloping the eurozone.
Analyzing the daily period on the GBP/USD chart, the picture will be identical, only multiplied by two in terms of the scale of the consequences of speculation. Here we have not just panic related to the coronavirus crisis, but Brexit, which has made a significant contribution to the speculative mood of market participants.
Regarding the details of price changes, the upward medium-term trend from the spring of last year has a scale of 24% in favor of the sterling, which is about 2,800 points. Coordinates 1.4224 serve as a conditional peak, and this, in turn, is the area of the 2018 maximum.
It turns out that the current medium-term trend for EUR/USD and GBP/USD has approached the high of the previous medium-term trend in 2018, and here the fun begins.
The upward trend, unjustified by the market, collided with the price area, which could not be overlooked, and the very speculators, who day after day increased the volume of long positions, began to massively reduce them. As a result, there was a correction in the market of 5% for the euro and 4% for the pound sterling. At the moment, the corrective move is no longer as small as, for example, in February, and it is somehow inappropriate to talk about the high overbought status of the euro and the pound. At the same time, based on the weekly analysis of the possible prospects for the economic recovery of the eurozone and Britain, it can be seen that there is nothing positive in the short and medium-term. So why is the medium-term upward trend that emerged in the market through speculative transactions should be renewed for a new term? Many traders are struggling with this question, since many signals indicate a possible change in the medium-term trends, both when working with technical and fundamental analysis.
If we pay attention to the corrective move from the peak of the medium-term trend, we will see that the recovery of the downward interest is 38% for the euro and 20% for the pound relative to the scale of the upward trend.
In fact, this is not yet a full-fledged signal of a change in trading interests, even if we take into consideration the EUR/USD pair, so many experts advise not to make hasty conclusions, since no one can rule out another speculative hurricane from the theory.
What should you focus on when planning short and medium-term prospects?
Since in this review we pay special attention to the technical aspect, traders should focus on price levels that border on the areas of interaction of trade forces, which in theory can lead to both a trend reversal and the emergence of a new cycle.
Let's start with an analysis of the euro, which has already come to the area of interaction of trade forces in the recent period. This area has price boundaries of 1.1600/1.1650/1.1700, where you can see a regular decrease and increase in trade volumes in history.
In simple words, speculators, resting on the logical part of the history associated with this area, can slow down the downward trend from the peak of the medium-term trend, which will lead to a new round of the upward trend, as in 09/28/20, 10/16/20, 11/03/2020.
At the same time, traders have the leverage to change the trend, this is an oblong correction with a scale of more than 600 points. If sellers manage to keep the course set earlier and also stay below 1.1600 on the daily period, then the medium-term upward trend may be hit by a reversal, and we will get a medium-term forecast.
As for the pound sterling, here the scale of the correction has not yet reached an oblong shape, and the quotes still need to reach the area of interaction of trade forces.
In this situation, no matter how strongly the signals for a trend change, there is no need to rush, since speculators are not asleep, and the quotes are still at a great distance from the border level, which will indicate a possible change in trading interests.
A wide range of 1.3200/1.3300/1.3400 serves as the area of interaction of trade forces, it is also the border level, which in its array has a span of several years of history.
The most famous moments associated with this area of interaction of trade forces were observed on 09.20, 12.19, 03.19, 09.18, 09.16.
Thus, for the pound sterling without unnecessary emotions, you can continue to work on local cycles, where keeping the price below 1.3669 can prolong the existing correction, increasing the chances of a move towards the area of interaction of trade forces. At the same time, holding above 1.3880 could lead to a closed cycle and a flat at the peak of the medium-term trend.
