EUR/USD: the downward trend is in force, but the uncertainty of bears is alarming
The euro-dollar pair today clings to the 16th figure, leaving no hope for the recovery of the upward trend. Last week, the bulls of the pair received several tangible blows: among them – the slowdown in core inflation in the eurozone and the “hawkish” Fed meeting. In addition, the European currency was under pressure from the Italian events against the backdrop of uncertain prospects for Brexit. This fundamental background returned the pair to the mid-15th figure, breaking the support level of 1.1660.
Despite the succession of such negative factors, today’s trading day did not become a continuation of the “downward rally” of the EUR/USD pair. On the contrary, the bears met quite active resistance of the bulls, and the pair is forced to win back every point of decline, followed by a price rollback. And although the general mood of the pair remains bearish, the slowdown in the decline should alert the supporters of short positions, especially since it is necessary to gain a foothold under the 1.1520 mark for a clear dominance of the pair. Given today’s dynamics, we can conclude that this task is not simple: the bulls are not going “without a fight” to surrender their positions, especially against the background of ambiguous fundamental background.
First, emotions in Italy have subsided. This was to be expected, as Rome did not exceed the budget deficit allowed by Brussels (3%), but only failed to meet the expectations of economists and experts. Despite the fact that Italian politicians promised to revise their social programs in order not to “inflate” the budget, de facto this did not happen: the budget was adopted with a deficit of 2.4% of GDP. By and large, nothing catastrophic happened, it was just that the market was annoyed by the actions of the Italian populists, who, on the one hand, carry out their election program (increasing pensions, social payments and cutting taxes), but, on the other hand, increase the national debt of the country and going along Greece, which a few years ago was a real “headache” for the ECB.
However, this is a problem of relatively distant prospects, and the market lives mainly today, so today the influence of this factor has significantly decreased. It should also be noted here that the Italian Finance Minister did not resign (although he voiced such threats) – which means that the issue of the scandalous budget did not turn into a political crisis, which would significantly aggravate the fundamental picture of the euro-dollar pair.
Brexit unexpectedly rendered indirect support to the European currency today. In the morning, the market received very encouraging information: London is ready to compromise on the Irish border. Let me remind you that this is the most problematic issue, which, in fact, slows down the entire negotiation process. If the parties find a common denominator on this issue, the probability of a deal in many ways (I would even say as much as possible) will increase.
The pound is already cautiously reacting to such news, since on the eve of the informal EU summit in Salzburg, such news appeared regularly – but the positions of the top officials offset all the preliminary agreements. Therefore, the pound-dollar pair literally entered the 31st figure for a few hours, but then returned to its previous positions. The hopes of reaching a compromise, at least for now, seem too elusive. The European currency also showed only short-term growth, after which the pressure of the EUR/USD bears increased.
Thus, all attempts to reverse the downward movement have so far failed. In turn, bears are uncertainly in control of the situation and sometimes “allow” opponents to return the price to the framework of the 16th figure. Although the EUR/USD bears have a significant trump card. After the Federal Reserve’s September meeting, traders are almost entirely confident that the interest rate will be increased again in December – and this fact pushes the dollar index up (at the moment the figure is at the level of 94.88 – a two-week high). The European currency can not oppose this fact a similar argument: the latest data on inflation in the euro area make us doubt the determination of the ECB members. Such a correlation can lead the pair to the nearest, strongest support level of 1.1520 (the lower limit of the Kumo cloud on the daily chart, which coincides with the lower line of the Bollinger Bands indicator).
If bears push this level, the next “stop” will be at 1.1450 (the lower line of the Bollinger Bands indicator on the weekly chart). So far, the bears are firm enough to take every step in the development of a new price territory – but if the dollar receives support from the Fed members (who act almost every day this week) or from Non Farms (whose release is scheduled for Friday), the EUR/USD pair will come to the above price points quickly enough.
The European currency can only hope for a change in the external fundamental background – primarily in the context of the settlement of the US-China trade conflict (as an alternative – a breakthrough in the negotiations on Brexit). Otherwise, the euro has a chance to lose the positions it won in September.