EUR/USD STRUCTURE DECONSTRUCTED| FUTURE ANALYSIS+FUNDAMENTALS

1 de jun. de 2020

The pair has broken out of the massive falling channel and has reached a major horizontal structure level.



The bullish impulse was spectacularly powerful, yet RSI signals that the pair is overbought+the strong level. The two together indicate a necessity of the pullback. The target area of the expected pullback is shown by the circle. This point is interesting for it is an intersection of 3 major support lines.

The move up was so powerful, however, that the pullback is likely to be less pronounced.

Now, I will lay out briefly the fundamental case for the mid-term stronger Euro.

The assessment is based on the size of the relief package issued by the governments and central banks of EU and USA, read the size of the added respective available liquidity.

The US government direct stimulus is already about 3 trillion dollars. Plus, the FED has promised unlimited liquidity, serving as the buyer of the last resort for the junk bonds market.

A quote from Washington post: "In late February, the Trump administration said it planned to spend $2.5 billion to fight the coronavirus. A month and a half later, President Trump signed off on spending almost a thousand times as much — $2.35 trillion. And that amount doesn’t include the Federal Reserve’s efforts, which are harder to measure but seem likely to blow past the $4 trillion mark."

So the US stimulus SO FAR had been 6 trillion.

This, while Europe is still trying to agree on 0.5 trillion Euro package. That is yet to materialize. The ECB has added 750 billion Euros of liquidity in the asset purchase program(PEPP). That is 1.25 Trillion Euros. Which is way less that 6 trillion of already available dollars in the US.
The comparison is made possible by the fact that the EU and the US economies are of the approximately similar size.

So, my point is that there is far more dollar liquidity flooding the market than the euro liquidity right now. And while the EU economy will hurt and badly, now for a couple of months, there will be a purely monetary driver for a more expensive Euro. I say, that the 1.14 level seems to be quite realistic.

I will elaborate on the Euro long term fundamentals later in a separate big article, but for now, we might take into the consideration the presence of the objective fundamental force that is driving the euro higher and be looking at the charts having this in mind.

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