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US dollar is trying to resist the decline amid statistics and high inflation

The US currency has to fight the collapse again at the end of the week, resisting the negative impact of several factors, including the problem of macro statistics. Nevertheless, experts are confident that it will recover without much loss.

For a long time, this currency remains hostage to high US inflation. It can be recalled that the December macro statistics showed the highest core inflation over the past 40 years. The recent US CPI excluding food and energy in annual terms was 5.5%, which is higher than November's 4.9%. Current macro reports have shown that the expectation of the Fed's decisive action has reached a peak. The current situation practically sharply affected the US dollar, which is trying to resist the impact of negative factors.

It has now suffered significant losses, including a key technical breakthrough in the EUR/USD pair. On Thursday, the classic pair broke the resistance line around 1.1386, which limited the actions of the EUR/USD pair since November 2021. The reason for this is the sharp weakening of the US currency, recorded after the release of the December CPI. On Friday morning, the EUR/USD pair was trading at the level of 1.1477, trying to keep its won positions.

Experts consider the level of 1.1500 to be the next important resistance area for the pair. This is the previous low of the EUR/USD pair recorded before its massive collapse last November. The current situation is much the same. Today, the US dollar hit its biggest weekly drop in eight months. The reason for this is a sharp reduction in long positions on the USD and the markets taking into account several Fed rate hikes in its price.

According to analysts, expectations of decisive action from the Fed do not matter much for the US dollar. Earlier, the US currency collapsed amid a sharp rise in the price of a number of commodities. The only "trump card" it has now will be another search for a safe haven if risk sentiment changes dramatically. The dynamics of this currency are significantly affected by inflation, and most often negatively. The Fed keeps the need to outpace its growth, and this tension has a negative impact on the American currency.

However, many experts are optimistic about the US dollar's medium and long-term prospects. Specialists believe that it will systematically strengthen, alternating ups and downs. Analysts summarize that this is facilitated by the continued growth of commodities and the global asset market.
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US dollar is looking for support to rise again

The US dollar started the new week with multi-directional dynamics. It remains between two contradictory actions. In such a state, experts say that it is difficult for the US currency to rise, but there is also no reason for it to decline.

At the end of last week, the above-mentioned currency surprised the markets by making sharp multi-directional movements in an attempt to consolidate with the status of a protective asset. However, these efforts were unsuccessful. Currently, the US dollar has regained some equilibrium, although some unorganized dynamics remain.

The Fed's hawkish intentions regarding multiple rate hikes this year have contributed to the US dollar's multi-directional movements. Against this background, it held to the previous rebound in the EUR/USD pair, as investors included several rate increases in its price. Experts said that the aggressive rhetoric of the regulator contributes to a sharp strengthening of the US dollar, combined with an increase in the yield of US Treasury bonds. The current yield on ten-year Treasuries has risen from the previous 1.772% to 1.793%. Experts believe that this provides additional support to the US currency.

On Monday morning, the EUR/USD pair was trading in the range of 1.1418-1.1419, trying to rise slightly. However, it is hard for it to reach new peaks right now.

Experts note the predominance of the "bearish" mood in the EUR/USD pair, which was facilitated by the breakdown of the mirror level of 1.1465 last Friday. At this point, the bulls are trying to control the situation. Their offensive will be successful if the levels of 1.1478 and 1.1529 are reached. However, the "bullish" scenario is likely to be canceled if the bears consolidate at the support level of 1.1401. In this case, the path towards the levels of 1.1353 and 1.1285 will be open.

According to experts, multiple increases in the Fed's interest rates in 2022 are necessary to avoid overheating the US economy. If overheating occurs, financial crises are possible, which will have a devastating impact.

Markets are still worried about the extremely high level of US inflation (7% in annual terms). According to preliminary estimates, this is three times higher than the pre-pandemic. The reasons for this growth are active monetary stimulus, the disruption of supply chains amid COVID-19, and problems in the US labor market, including higher wages due to a shortage of workers and more frequent job changes.

Experts consider raising the interest rate of the Fed as one of the main ways to curb US inflation. Most market participants expect this in March 2022, although some expected it to rise at the next meeting of the regulator, scheduled for January 26. Analysts admit that the Fed's strategy may be more aggressive than expected. The implementation of such a scenario will direct inflation downwards, but will significantly affect US economic growth.

Currently, the US currency is trying to rise and consolidate in an upward trend. However, these actions are held with varying success. Concerns about its further decline are provoked by the rising bearish mood on the EUR/USD pair. Traders built up positions for three weeks to buy the US dollar, and then changed tactics to the opposite. Throughout the previous week, large investment funds have reduced USD purchases by 5%. Experts conclude that the continuation of the current trend contributes to the US dollar's further decline.
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European stock markets closed trading with strong growth

The Chinese economy grew 4% in the last quarter of 2021 compared to the same period of the previous year, the weakest increase since the second quarter of 2020, data from the National Bureau of Statistics of the PRC showed. GDP growth slowed down from 4.9% in the previous quarter, however, exceeded the forecasts of experts who had expected growth of 3.6%.

In 2021 as a whole, Chinese GDP increased by 8.1%, which exceeded the country's target of "above 6%". In 2020, according to revised data, the country's economy grew by 2.2%, and not by 2.3%, as previously reported.

The composite index of the largest companies in the Stoxx Europe 600 region rose by 0.7% by the close of trading and amounted to 484.51 points.

The French CAC 40 added 0.82%, the German DAX - 0.32%, the British FTSE 100 - 0.91%. Spain's IBEX 35 and Italy's FTSE MIB rose 0.36% and 0.52%, respectively.

Unilever Plc, one of the world's leading food and home goods manufacturers, has made its third offer to acquire a joint venture between GlaxoSmithKline (GSK) PLC and Pfizer Inc. for the production of consumer health products for 50 billion pounds ($68.4 billion). Unilever lost 7% and GSK rose 4.1%.

The Spanish bank Banco Bilbao Vizcaya Argentaria SA will return more than 7 billion euros to its shareholders in 2021 and 2022. In particular, the bank plans to complete a €3.5 billion share buyback program launched last year and pay dividends for two years. Banco Bilbao's share price rose 0.3%.

Shares of Air France-KLM added 0.6%. The air carrier has asked the EU authorities to make more flexible rules for the use of slots (the period of time that an airport allocates an aircraft for takeoff or landing - IF) at the region's airports amid restrictions imposed on flights due to COVID-19.

Share prices of Credit Suisse Group AG fell 2.3% on news that the bank's chairman Antonio Horta-Osorio is leaving his post after violating covid restrictions.

The value of British pharmaceuticals Clinigen Group PLC fell 0.8% after it became known that Triton Funds was buying the company for 1.3 billion pounds ($1.78 billion).

Fraport AG lost 0.5%. Frankfurt am Main Airport (Germany), operated by Fraport, served 24.8 million passengers in 2021, which is 32.2% higher than the previous year, when passenger traffic collapsed by 73% and reached its lowest level since 1984. Meanwhile, passenger traffic remains 64.8% below pre-pandemic 2019, according to a Fraport press release.
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