EURUSD TECHNICAL ANALYSIS 08/05/2021
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Fundamental Analysis -:
Unlike the usual recession, now the problem is not in the demand for labor, but in the supply of labor. And this presupposes accelerated growth of wages, inflation and, accordingly, the potential strengthening of the dollar.
The latest release of the NFP not only shocked everyone, but also posed very difficult challenges for all currency traders and trading strategists. Economists, of course, will gradually sort it out, but for now the following picture is emerging.
The problem in the US right now is not that there are no vacancies and no jobs, as is usually the case during recessions. The problem now is just the opposite - there are vacancies and there are jobs, but there is no one to fill them. People do not want to go to work at the salaries that employers are ready to offer them. In the language of economists, the problem is not the demand for labor, but the supply of labor. People are in no hurry to offer their services to employers.
Thus, in order to expand the business and increase profits, employers will have to increase their salaries and compensation to workers at an outstripping pace. And this, in turn, presupposes an accelerated rise in inflation. In general, many employers say that inflation is already in full swing. And the accelerated growth of inflation is likely to lead to an increase in rates and a strengthening of the dollar.
The graph shows unemployment benefits and the federal minimum wage. The minimum wage is $ 290 per week. And the unemployment benefit before the epidemic was $ 348. At the height of the epidemic, the allowance was $ 938, and now it is $ 638. Until the employer pays a salary of more than $ 638, it will not be realistic to find workers for the position, or in any case it will be very difficult. In many industries, employers are not willing to pay such salaries, and therefore jobs are empty and vacancies are not filled. Credit markets proper, which are faster in their reaction than foreign exchange markets, have already felt this -
Technical Analysis -:
The bond market is the best indicator and it senses inflation very well. Treasury yields increased yesterday, which means the dollar will strengthen. It's just that the currency markets are by their very nature very slow and inertial, but at the same time they are not the most "smart" ones. Yesterday the EUR / USD pair was fulfilling the pre-planned program and therefore went up all the way. But apparently, the program may change by Monday.
Nevertheless, the Fed has continued to increase its balance sheet over the past week - that is, to print "money" for financial markets. The phase of reducing the balance (the week before) was replaced by the phase of increasing the balance. That actually immediately affected the dollar rate. As soon as the Fed began to build up the balance, the decline in the EUR / USD pair ended and the pair began to grow and the dollar began to weaken.
On the daily timeframe, the pair bounced off the support zone and began to move up. Broke the inclined trend line and reached the resistance zone from 1.21560 and above. Most likely, the pair can arrange a pullback and test the sloping trend line from the reverse side at the level of 1.20948 . If the pair bounces off the inclined trend line, the pair will start to grow again to the resistance zone at 1.2170. If the pair breaks the trend line from top to bottom, then it will go to the level of the support zone around 1.20.