EUR / USD: The euro is growing on the illusions of change
Geopolitical fundamental factors are characterized by their volatility and unreliability. On the other hand, such factors can influence not only this or that currency pair, but in general, the mood of the markets. For example, the day before yesterday, there was information that Turkey could release the American pastor causing the dynamics of many currencies (lira, euro, pound, yen) to instantly change. As soon as these rumors were not confirmed, the decline in the European currency and many others significantly increased. The information pause did not last long: during the Asian session, the market received “food for thoughts”, and immediately moved in two directions, fueled by the prospects of the Turkish crisis and the trade war between the US and China.
Let’s start with the Turkish problem. Yesterday, it became known late in the evening that Qatar is ready to invest in the Turkish economy with more than 15 billion dollars of direct investment. This information is unconfirmed: one of the Turkish news agencies referred to an anonymous source in the presidential circles. However, given yesterday’s meeting between Emir of Qatar and the President of Turkey, and especially the subsequent rhetoric of their representatives, it is likely that promises of 15-billion investments will become a reality. Such prospects have affected not only the Turkish lira, which has strengthened against the dollar by more than a thousand points – from the annual lows, but also the EUR/USD, GBP/USD, and even the Australian dollar, which was pushed by good data on the Australian labor market.
The European currency, paired with the dollar, is back to the 14th figure, also “remembering” that data on GDP growth for the second quarter were revised upward (from 0.3% q / q to 0.4%, and from 2.1% y / y to 2.2%). And although the European economy still slowed in the second quarter relative to the previous period, this recalculation slightly improved the positions of bulls of the EUR/USD, which were able to organize the minimum allowable correction in the current situation.
Interesting news came from China. This night it became known that representatives of the Ministry of Commerce of the People’s Republic of China will visit Washington, where they will hold trade talks. According to the Chinese, the initiative was shown by the Americans. The delegation will be headed by the vice minister of trade of China, which speaks about the high level of the representative level of the visit. Beijing has already announced that it will not accept any ultimatum from Washington and will not unilaterally take any measures. However, in the context of recent events, the very fact of the dialogue is important because in this case, there is at least a minimum probability of rapprochement of positions.
In other words, optimistic notes appeared in the information space, which gave hope for resolving serious crisis situations. The market did not fail to take advantage of this opportunity, and many (almost all) dollar pairs showed a correction. However, in our opinion, the above information reasons can not reverse the general situation on the market. The market “missed” good news, so any hints of positive changes with great enthusiasm are perceived by traders.
However, the de facto bulls of the EUR/USD could not even go to the 14th figure to confirm their presence in the market. The remaining dollar pairs also showed quite modest corrective movements, which already slowed at the beginning of the European session. Which is justifiable – after all, the assistance of Qatar in Turkey and the visit of the Chinese delegation to the United States only brightened up the information background, but did not solve the problem.
So, according to a number of experts, Turkey will have to apply to the IMF for financial assistance of $200-230 billion by the end of the year. Qatar’s aid is not capable of “closing” the needs of the Turkish economy, despite serious injections. Here the psychological support factor plays a role, but, by and large, the situation has not changed. Moreover, the American Vice President Mike Pence asked the Turkish authorities to “stop hysteria” and called for the release of the American pastor. He made it clear that the States will not lower the level of pressure until Ankara fulfills the demand of the White House.
As for the visit of the Chinese delegation, there is more hope for some positive result. However, it’s too early to talk about this, especially since Beijing and Washington are not the first to sit down at the negotiating table but previous meetings ended in nothing.
Thus, the optimism of the Asian trading session is at least premature. The eurodollar pair is still in a strong downward trend, and the fundamental background is still unable to break the southern movement. In our opinion, only Donald Trump can change the situation on the market with the help of verbal interventions. On the market, it is increasingly said that in the near future the reaction of the White House should be followed by the exchange rate of the national currency (especially when EUR/USD approached the 12th figure, and USD/CNY reaches the historical maximum). This is what explains the slowdown in the growth of the dollar index today, which once again updated the annual minimum for the week.
As a whole, with respect to the EUR/USD pair, I adhere to the previous strategy. Until the price is fixed above 1.1450 (the Tenkan-sen line on the daily chart), and for reliability, above 1.1570 (the Bollinger Bands average line on D1), no break of the trend can be done by speeches. This means that at the moment, the pair continues to be in the downward movement with the main southern target of 1.1250 (the bottom line of Bollinger Bands on the monthly chart).