After the crisis reached the bottom, thereby letting the global economy start recovering, the common European currency showed a fairly steady rally. America’s low interest rates along with quantitative easing contrasted with the ECB’s conservative approach.
On top of that, investors lost interest in the US Dollar in favor of riskier (but more paying) assets. Excessive optimism amid strong rallies in most markets made investors ignore huge imbalances and mere economic problems.
Now, when the comm. European currency cannot boast stability, we will try to find out its mid- and long-term prospects together with Masterforex-V Academy…
Euro Under Pressure Of Crisis Phenomena
Today’s crisis was born in early 2001 when Greece joined the EU. Having got access to abundant credit opportunities, the Greek government failed to solve the budget deficit problem when everything was ok. Instead, they increased the rate of employment by boosting the public sector amid a poor taxation system.
Only in 2009, the country and the entire Europe saw the real seriousness of Greek problems. At that time, the EU and the eurozone realized that Greek authorities were counterfeiting economic statistics to conceal deep problems and discrepancies. The ECB and European authorities were slow to react, which only aggravated the situation. At the same time, speculators raised panic in financial markets to benefit from the situation. This resulted in Greece losing access to credit markets. As a result, officials and analysts started predicting various gloomy scenarios, including a Greek default and exit from the eurozone. The worst-case scenario implied the domino effect with a series of defaults in Europe and a eurozone breakup.
Therefore, other stronger eurozone economies had to bailout Greece and other risky eurozone economies.
So far, European authorities seem to have worked out efficient mechanisms to come out of the prolonged crisis. At this point, it is too early to say whether these mechanisms will prove efficient. Apparently, the problems cannot be easily solved in an instance.
Meanwhile, the current uncertainty around the continued eurozone crisis and the global economic recovery makes investors turn to safe-haven assets like gold and US bonds. This has already caused deep corrections in stock markets worldwide.
As for EURUSD, the common currency has already lost 20% versus the US Dollar since the 4-year high 1.51. What are the near-term prospects?
EURUSD: Mid-Term Wave-and-Volume Synthesis
H4 chart indicates a rally (green arrow). The biggest volume is around 1.2965. On February 1st, the market started retracing (red arrow).
Let’s consider the bearish movement started on Feb 1st. This is the same H4 chart, only the scale is bigger.
The fist downswing (Feb 1st – March 26th) created a wide range of 1.3090 – 1.2970 without a clear top. Still, the histogram shows that the biggest volume is concentrated close to the end of the bearish move. The movement started from the March futures contract and ended on the current (June) contract.
Please, not that the famous 180-point gap (March 16th-17th) took place with the scope of the mentioned volumes.
Later on, the price started recovering from the downswing (blue arrows). Within the scope of these movements, the max volume is shifted towards the end.
The most interesting thing started on May 1st (red arrow). The movement can still be considered a correction until it breaks the 1.2745 low – a correction of level 3. The max volume of the movement - 1.2865 – is located closer to the end as well.
It seems like the market was so shocked by the Cyprus problem that it is still trying to decide on the direction of the forthcoming mid-term trend.
And finally, the recovery (May 1st -17th) is still a minor one. It is potential will be evaluated within the current week on junior timeframes. At this point, it is a correction of level 4.
The bottom line:
If to consider mid-term prospects, EURUSD is currently trading within the scope of a complex multi-level correction. There market is still indecisive. The range is getting narrower. Therefore, Masterforex-V Academy experts recommend reducing exposure (it holds true for mid-term trades) until the market hints at the prevailing direction. At the same time, it would be wise to focus on junior timeframes - M15-H1.
The key decisive levels are 1.2965 (long-term volume cluster), 1.3090 – 1.2865, mid-term range levels.
