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29.12.202223:54 Forex Analysis & Reviews: EUR/USD. No time to bounce: January will start with the Fed minutes and the Nonfarm

The euro-dollar pair will apparently meet the New Year in the range of 1.0550-1.0660, and the pair has been trading in this range for the second week now. However, recently, the price has clearly gravitated towards the upper limit of this range— EUR/USD bears regularly seize the initiative, but they also lose their grip at the base of the 6th figure. Therefore, it is possible to draw an obvious conclusion that the aforementioned range is gradually narrowing amid low liquidity and general New Year's Eve dormancy.

The economic calendar of the current week is nearly empty — especially for the EUR/USD pair. Secondary macro data, which come mainly from the United States, provoke only short-term price spikes. All price fluctuations occur "inside" the range. Traders are hesitant to open large positions ahead of a long weekend – neither in favor of the greenback, nor against it. Therefore, at the moment it would be wise to take a wait-and-see position on the EUR/USD pair: traders can leave this range next week (starting from Tuesday-Wednesday), the only question is - towards the downside or the upside.

This week, China is the main focus in the foreign exchange market. The news stream coming from the PRC is characterized by extreme inconsistency: against the backdrop of world media reports about an unprecedented outbreak of coronavirus, official Beijing is taking the first steps to ease the "zero-Covid" policy.

And judging by the behavior of the pair, market participants also cannot form a single, "dominant" opinion about events in China. At first, when unofficial information surfaced, demand for the safe dollar increased significantly. Then, when Beijing confirmed rumors about the easing of the "zero-Covid" policy (radically changing the strategy of hard lockdowns to the lifting of restrictions), risk appetite increased in the market. The greenback, accordingly, began to gradually lose its position.

But then alarming headlines began to appear in the press again — that the medical system of the People's Republic of China (PRC) cannot cope with a large number of infected people, and morgues are overflowing with those who died from Covid. According to media reports, the number of Chinese infected with Covid in December is approaching 300 million. Official statistics are hundreds of times lower (only 62,000 infections). And although Beijing admits that the situation is "difficult," at the same time none of the authorities are talking about tightening the screws or canceling the already accepted concessions. The stance is more of a calming nature, they say, there will be places in intensive care for severe cases of Covid, and for lighter cases they will increase the capacity of existing medical institutions.

Meanwhile, we found out that top officials of the EU countries responsible for health care held a meeting to coordinate the response to the outbreak of the epidemic in China. Thus, Europe, so to speak, "legalized" unofficial media information about the unprecedented scale of the Covid outbreak in China. Some EU countries have already imposed controls on Chinese travelers. In particular, representatives of Italy reported that approximately 50% of passengers on two flights arriving in Milan yesterday tested positive for COVID-19.

Such contradictory signals of a fundamental nature play against both bulls and bears of EUR/USD. Amid an almost empty economic calendar, China has become the main information provider in the foreign exchange market.

But you should not "trust" China — at least because traders themselves cannot decide on a single position regarding Chinese events. In my opinion, the foreign exchange market will return to the standard channel next week, referring to the classical fundamental factors.

Moreover, the first week of January might please EUR/USD traders with its significant reports. For example, on Tuesday (January 3), key data on inflation growth in Germany will be published (as a "bonus" - German labor market data); on Wednesday, the minutes of the December Fed meeting will be published (a very important release, given the conflicting signals of the accompanying statement, Powell and Williams) and the ISM manufacturing index; in Thursday — the indicator of the increase in the number of employed in the United States from the ADP agency; and finally, on Friday — Nonfarm (another important release) and the index of business activity in the service sector from ISM.

Therefore, you should not trust the current fluctuations in the price of EUR/USD: the "parity relationship" between bulls and bears will not last long, the situation may change dramatically next week.

Thus, in conditions of such uncertainty, it is difficult to imagine a stable price trend, both towards the downside and the upside. Therefore, in my opinion, the pair will be trading in the range of 1.0550-1.0660 in the coming days (with a possible breakthrough to the area of 1.0670-1.0680). But as for the future prospects, everything will depend on the dynamics of the aforementioned macroeconomic indicators.

*Phân tích thị trường được đăng tải ở đây có nghĩa là để gia tăng nhận thức của bạn, nhưng không đưa ra các chỉ dẫn để thực hiện một giao dịch.

Irina Manzenko,
Analytical expert of InstaSpot
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