EUR/USD: Euro ignores encouraging rumors
The euro/dollar pair can not choose the vector of its movement on the third day. The hourly chart of this pair resembles a cardiogram, with impulse jumps and price dips in a fairly narrow range. The higher time frames (H4 and higher) also show the weakness of both bulls and bears of the EUR/USD.
Abstracting from the theme of the US-China trade war, it should be noted that the fundamental background contributes to the strengthening of the European currency. The two-month rise in inflation in the Eurozone countries gave impetus to the tightening of the rhetoric of the ECB members. And both in the public media space and in the behind-the-scenes atmosphere, when sources of insider information prefer to remain anonymous.So, last week the single currency rose on rumors that the European Central Bank may raise the rate before the expected date. After that, the probability of a rate hike in September next year increased significantly, although before that market expectations were associated with the last meeting of the ECB in 2019 in December.
So, last week the single currency rose on rumors that the European Central Bank may raise the rate earlier than the expected date. After that, the probability of a rate hike in September next year increased significantly, although before that market expectations were associated with the last meeting of the ECB in 2019 in December.
Furthermore. On Wednesday, another American news agency published the news that the members of the regulator are considering two scenarios of tightening monetary policy next year. One scenario involves a rate hike in September, the other – in July. According to insider information, the opinions of the regulator’s members on this issue are divided. But even taking into account the existing disagreements, this fact suggests that, a) the European Central Bank does not intend to extend the QE after December 2018; b) the position of Mario Draghi that “the rate will be at the current level for a long time after the curtailment of the stimulating program”, to put it mildly, it does not correspond to the real intentions of the regulator; C) there are hypothetical chances that the rate can be raised before September 2019.
This information, which was published on the basis of unnamed sources in the ECB, is consistent with the public position of some members of the regulator. In particular, the head of the Bank of France, which is also a member of the European Central Bank, Francois Villeroy today noted that the rate can be raised “not before the summer of next year.” According to the voiced position, the July rate increase cannot be excluded. Mario Draghi, who spoke in Germany today at the opening ceremony of the international economic conference, did not talk about the prospects of monetary policy. But earlier he positively assessed the dynamics of inflation growth in the Eurozone, predicting in the medium term the achievement of the target level. The main risk for the EU economy Draghi identified trade barriers on the part of the United States.
The notorious trade war, declared by Donald trump to the leading countries of the world, is now the main “headache” of the ECB. It is this factor that holds back the euro for full growth-not only in tandem with the dollar, but throughout the market. The escalation of the US-EU trade conflict will not only destroy traders ‘ hopes for a quick tightening of monetary policy in the Eurozone, but will also increase the likelihood of QE action prolongation. At the last EU summit, Mario Draghi warned the leaders of European countries about the catastrophic consequences of a full-scale war between Washington and Brussels.
However, US-European trade relations are still subject to resuscitation (unlike the US-Chinese). July will play a key role in this context. Many factors will influence the final result, but first of all it is about the tariff policy of Washington in relation to European cars. German Chancellor Angela Merkel has made it clear that she is ready to make concessions, depending on what decision the relevant Committee will take in the US, which is conducting an appropriate investigation on the import of cars from Europe. A week later, on 19-20 July, there will be an open hearing on this issue, and at the end of the month the Committee must make a verdict, deciding the fate of the new duties. Approximately in the same period of time, the head of the European Commission Jean-Claude Juncker will visit the White house. If by this time the issue of tariff policy is resolved, the dialogue with Trump will be held in a positive way. This fact will allow us to talk about the de-escalation of the trade war, which will have a positive impact on the European currency.
As we can see, there are too many “if”in the above scenario. That is why the euro is on standby mode, reacting sharply to any negative factor associated with US-European relations. But the European currency, on the contrary, ignores positive rumors. By and large, the announced intentions of the central bank will be useless if Brussels and Washington follow the “Chinese way”.
Thus, the situation for the EUR/USD pair is in limbo, and traders ‘ mood depends mainly on the dynamics of the external fundamental background. The release of US inflation, which is scheduled for Thursday, may somewhat “stir up” the pair, especially if the indicator comes out worse than expectations. But in the long term, the pair will still depend on news from the “front” of the trade war.
Technically, the pair is trading in the range of 1.1645-1.1780 (the average line of Bollinger Bands crossed with the Tenkan-sen line and the upper line of Bollinger Bands, respectively). A breakout, and most importantly consolidation, above or below the indicated levels will increase the pressure or support for the pair. However, it is impossible to talk about the most probable vector of price movement now, as the market has been at the actual price crossroads for several days. US inflation may push the price into one side, but the external fundamental background will still play a dominant role for the pair.