The last month of spring began quite alarmingly: Washington accused China of artificially creating the coronavirus Covid-19, and the North Korean military fired at the demilitarized zone, damaging the border post of South Korean border guards. This fundamental background has alerted investors, after which the demand for protective assets has increased slightly. The main beneficiaries of this situation were the dollar and the yen, which grew throughout the market at the start of the trading week (however, the Japanese currency still has a slight advantage in the USD/JPY pair). On the other hand, the euro/dollar pair follows general trends, gradually sliding to the base of the ninth figure.
However, it should be noted that the market sentiment is not "clearly bearish." The dollar index even shows growth, but this growth is very uncertain, with fairly deep pullbacks. The downward dynamics of EUR/USD is also not quite falling, although the influence of dollar bulls has noticeably increased. However, the fundamental factors voiced above are not so strong as to radically turn the tide over the pair. The market is more likely to respond to growing general uncertainty than to the "root" problems that, in fact, gave rise to this uncertainty. Due to this fact, short positions on the EUR/USD pair are currently risky, especially since the bears did not sell the support level of 1.0880.
So, US Secretary of State, Mike Pompeo, has become the main newsmaker of recent days. He stated that there is "a lot of evidence" at the moment that the coronavirus pandemic began because of a leak from the laboratory of the Institute of Virology in Wuhan, China. At the same time, it is not yet established how exactly the virus spread: after a person contacts an infected animal due to a leak from the laboratory or intentionally (the latest version is now being actively discussed in the American press). Moreover, Pompeo ignored the journalist's clarifying question on this subject, adding only that he can't say right now about the intentionality of any actions on the part of the PRC.
The comments of the US Secretary of State appeared almost right away after the resonant publication in the Daily Telegraph. British journalists published a report by the intelligence community of the United States, Australia, Canada, Britain and New Zealand (the so-called Five Eyes Alliance). According to their data, the PRC authorities learned about the possibility of transmitting coronavirus from person to person at least a month earlier than the world community was notified, that is, in early December. The report also said that representatives of the Chinese authorities forbade scientists to research a new disease, intimidated and even harassed those who brought this topic into the public domain.
The information of the Daily Telegraph was indirectly confirmed by Bloomberg reporters. They became aware of the contents of the US intelligence report - in particular, it says that China concealed the scale of the outbreak of coronavirus, underestimating both the number of infections and the number of deaths - apparently, this was done in order to procure medicines and medical remedies from illness. According to U.S. intelligence, China reduced exports in January and increased imports of medical supplies and tried to hide this by denying export restrictions and delaying the provision of its trade data.
Beijing categorically rejected all the allegations and called on Washington to "bring charges and evidence to the world." According to the Chinese side, the States continue to mislead society, using the theme of coronavirus for their political purposes. It is worth noting here that Pompeo did not really provide any evidence to the world community. But it seems that the market did not focus on the essence of the allegations, but on the very fact that relations between Washington and Beijing have worsened. After all, we should not forget that the superpowers last year agreed only the first stage of the trade agreement, while the second, the most difficult, stage is still ahead. And such serious accusations from the US do not contribute to the "friendly dialogue" that should take place after the end of the pandemic.
The increase in anti-risk sentiment was also due to the behavior of the North Korean military, who fired at the demilitarized zone, after which the South Korean border guards returned fire. There were no casualties, but the very fact of the DPRK's sudden aggression against the backdrop of the "disappearance" of Kim Jong-un (the state media of North Korea recently published only his photo) put additional pressure on the EUR/USD pair due to increased demand for a safe dollar.
Therefore, the fundamental background for the pair contributes to a further price decline – after a three-day growth, this pullback looks quite logical, including from a technical point of view. Nevertheless, each point won is given to the bears with great difficulty, so it is advisable to open short positions when the pair declines below 1.0880 (the middle line of Bollinger Bands, which coincides with the Tenkan-sen line on the daily chart). If the "round" resistance level of 1.1000 is exceeded (the upper line of the Bollinger Bands coincides with the lower border of the Kumo cloud on the same time frame), the bearish scenario will lose its relevance. In this case, it will be possible to open long positions to the level of 1.1070 (upper border of the cloud Kumo).
Such a price rebound may happen tomorrow, after the announcement by the German Constitutional Court of a judicial verdict regarding the legality of the ECB asset repurchase program. If the judges recognize this program as legitimate, the single currency can grow significantly throughout the market, including when paired with the dollar. In this case, the pair can approach the borders of the 10th figure, thus "canceling" the downward scenario.
