The threat of a summer lull for the euro and stocks

The dollar’s retreat in the currency market cannot gain traction, making us question whether we will see a breakout of key support levels for the dollar. The hesitations of bears and a seasonal slowdown in trading activity may lead to a new growth impulse that will have to wait many months.

The well-known motto “sell in May and go away” is often falsely interpreted as a warning against sagging markets. History tells us that trading activity and the determination of players to storm new extremes start to fall noticeably in May.

As always, there are exceptions to this rule, like what we saw last year when April and May served as a starting base for the relief rally in US stocks. But then again, it is worth looking at the performance of the European markets to see whether it was possible to save yourself a lot of nerves and energy by staying out of the equity markets until November and not lose so much.

In the currency market, it is rare to see such a long holiday. EURUSD usually has the same trend in June and July as the beginning of the year, but right now, it is not easy to clearly define the prevailing direction of this year.

From a monetary policy perspective and EURUSD behaviour patterns in 2021, we see some analogies with 2013. If so, the pair may continue its uncertain rise in the coming months with regular pullbacks, albeit rewriting local highs.

According to this pattern, in the EURUSD, it is worth paying attention to the two dynamics at the 50 and 200-day simple moving averages. If the slump under the 50-day moving average is marked by increased selling, then the sell-off in the pair will not stop at the 200-day average either. Thus, the decline of the former line under the latter one, the so-called “death cross”, will question the strategies for the long-term fall of the USD.

The described pattern is only a possible development, and it is worthwhile to look for a EURUSD movement near the signal lines. And while EURUSD could stay above 50-day MA, sticking to the uptrend, we may see further ‘buying the deep’ pattern, which is in place since April.

The FxPro Analyst Team