EURUSD: sometimes its worth going against the market

The fall of the EURUSD from the highs of 1.25 to the current values has already exceeded 700 points, which, of course, goes beyond the usual fluctuations up / down around the equilibrium price. Given such a serious price change, it is necessary to understand its causes in order to determine the nature of the decline in the EURUSD pair - a radical change in the alignment of the fundamental forces in the pair and the formation of a full-fledged downtrend, or else it is a market overreaction, that is, anomalous price change (temporary deviation from the norm). Actually, the answer to this question determines the trade decision - buy a pair or sell it.

The first thing to note is that the decline in the EURUSD pair is entirely the merit of the dollar, which has generally strengthened on the foreign exchange market and has grown by almost 5% over the last month. That is, the decline in EURUSD by 80% +/- is due to the strengthening of the dollar. So it's not the weakness of the euro, but rather the strength of the dollar. So, analyzing the future of the pair, it is necessary first of all to look at the dollar.

What caused the growth of dollar? First and foremost, this is the growth in the yield of US Treasuries, which provoked the inflow of capital into the country and increased demand for the dollar. Further, the country's economy continues to show very good results, in particular GDP growth rates are around 3%, which is very impressive for such huge economy of a developed country. The tightening of monetary policy, the Trump tax reform - these factors also contributed to the strengthening of the dollar.

Formally, these reasons are enough for long-term growth of the dollar, if not for one "but". By and large, they were all present a month, two, three or more ago, when the dollar was sold on all fronts, or simply nobody did not want to buy it. Because attention was paid to Trump's trade wars, political scandals around his person and the election process, the problem of the budget deficit in the US, etc. That is, the current growth of the dollar is more about investors’ sentiment and the focus of their attention, rather than about objective reality. And if so, the current dollar growth is very unstable. Literally at any time (for example, the US withdrawal from the deal with Iran as an excuse or activization of trade wars in the form of someone's aggressive statements), markets can once again concentrate on negative factors for the dollar. And this will lead to his sales.

That is why we believe that the growth of the dollar, and hence the fall of EURUSD, is more about an overreaction and deviation from the norm than an "honest" downtrend. Accordingly, our opinion, the current price of the EURUSD pair is artificially low. So the further reduction of the pair is unlikely. In favor of this evidences the strong oversold of the oscillators and the finding of trend indicators in the extreme zones, and the constant finding of daylight candles on the lower Bollinger line. Our recommendation in this regard is to go against the market and buy EURUSD. The error in estimations will be not very expensive, since the stops are not very big. But in case of our rightness, the profit will be very significant.