Forex Traders Lose Faith in Euro Currency
FX traders have reacted in a very pessimistic manner to the most recent data released from the
European Union (EU), following an initial bullish sentiment in reaction to the fact that the EU had finalised their Coronavirus Recovery Fund. Following the brief market optimism, possibly due to fundamental trading algorithms reacting to positive phasing regarding the recovery fund, human FX traders reacted very poorly to the fact that the EU seemed to be withholding market-relevant data, just as we saw in the US recently (see our recent blog about it here: https://www.tower.technology/post/wall-street-earnings-a-bounce-that-may-not-come).
What followed was a very negative sentiment concerning the Euro, quickly tracing downwards from four-month highs and testing a newly formed support line around the 1.143 mark. An even more solid support line and channel at 1.142 is being tested as well, but is proving to be a very solid floor to break.
As of this publication, the support line seems to be holding, but it seems that traders do not react kindly to omission of routine data.
The trader sentiment is not altogether surprising, considering that traders also reacted negatively recently to the US companies refusing to release their earnings earlier this month. It seems nobody is really fooled when crucial earnings data is not released, as it looks to most fundamental traders that the truth is being concealed, and likely this is because the truth is bad.
Additionally, the data that was released to the market fell short of expectations as well. The seasonally adjusted surplus is far below expected levels, and that was the news we were allowed to see. This price drop is at present a war between negative sentiment of the fundamental traders, and technical traders relying on support and resistance lines as well as channels.
Our algorithm managed to spot this change in sentiment as it happened, and dove in and out as the slide downward initially happened, ignoring the initial spike upwards in sentiment that many traders and algorithms traded on before the rapid downturn. This once again shows the benefit of a market-neutral approach to trading algorithm design, as volume-based trading will often find the best place to enter a trade as opposed to relying on fundamental data.