There was high activity in the market yesterday, which was due to good reasons. We'll consider them one by one.
Let's start with the pound, which showed maximum activity + 0.96% yesterday from 11:00 to 12:30 Universal time.
At this moment, the results of the first meeting of the Monetary Policy Committee of the Bank of England in 2021 were known, where the regulator left all parameters of monetary policy unchanged. The main driver for the pound's growth was the comment of the Governor of the Bank of England, Andrew Bailey, on the interest rate. In particular, he excluded the possibility of negative rates in the near future.
The pound sterling, which initially showed interest in the corrective move, returned to the levels of the high of the mid-term trend after the results of the BoE meeting. Thus, the overbought status still remains in the market.
In Europe, there was a publication of retail sales data, whose volume sharply rose more than expected – from -2.2% to 0.6% (Dec. y/y). The growth in monthly terms was 2.0%. As we can see, the indicators are great, but the euro ignored it and continues to decline in value.
What is the reason for the discrepancy? The answer lies in the shocking inflation growth to 0.9%. Investors are concerned that the European Central Bank will have to reconsider its goals due to such an acceleration.
The United States, in turn, published its weekly data on applications for unemployment benefits, where their volume declined more than expected.
- Volume of initial applications declined from 812 thousand to 779 thousand.
- Volume of repeated applications declined from 4,785 thousand to 4,582 thousand, against the forecast of 4,700 thousand.
The value of the US dollar continued to strengthen against the euro by the time these statistics were published.
For the EUR/USD trading chart, we noticed that the quote broke through the support level of 1.2000, which resulted in the prolongation of corrective move from the high of the mid-term trend.
The overall scale of the correction is almost 400 points. However, sellers still have a margin for a decline, considering the magnitude of the upward trend.
Trading recommendations on EUR/USD and GBP/USD for February 5, 2021
Today's main focus is the report of the US Department of Labor, which is always relevant to the market and is one of the most significant factors that can determine the further direction of movement of stock quotes. After all, the state of the labor market is fundamentally important to the general economy.
Based on the expectations for the report, the unemployment rate is predicted to remain unchanged at 6.7%, while the number of new jobs created outside agriculture in January is expected to rise by 50 thousand, which is a good signal.
Traders view the results of the report as a positive signal for the US dollar's growth.
13:30 Universal time - US Department of Labor report
If we analyze the current trading chart of EUR/USD, it can be seen that the quote stagnates at the level of 1.1965, having a narrow amplitude of 20 points. In fact, market participants are in a cumulative process ahead of the publication of reports. If the quotes are kept below 1.1950, a decline may occur in the direction of 1.1900-1.1810.
An alternative scenario of the market development will be considered if the current stagnation leads to the price's smooth return to the previously passed level of 1.2000, where a flat is likely to happen.
As for the current trading chart of the GBP/USD, we can see that the quote continues to move within the limits of the previous range of 1.3650 // 1.3700 // 1.3750, while showing low activity. If we proceed from the pound's overbought status, then there is still a chance for a correction in the market. However, this will only be considered after the price is kept below the level of 1.3650 for a four-hour period.
In turn, the continuation of the movement within the framework of the currency range can be expected after the price holds above the level of 1.3700.
