Today, the dollar pairs froze in anticipation of the speech of the head of the Fed, Jerome Powell, before the congressmen. Some traders are hoping for a "hawkish" tone of the performance, while others are afraid of hesitant notes in his rhetoric. In any case, this event will cause a strong volatility among dollar pairs, so today it is advisable to refrain from trading "majors".
But among the cross-pairs, the most interesting is the euro / pound pair. Since October last year, this cross is traded in a fairly wide, but at the same time convenient for trading price range of 0.8740-0.9010. And in the winter months, the pair could not even reach the level 90 with the spire, stopping at the border of the 89th figure. Such dynamics is explained by the uncertainty of investors and distrust, both in relation to the euro and to the British currency.
Bulls and EUR / GBP bears regularly intercepted the initiative on the background of a contradictory fundamental background over the past five months. In late 2017, Britain and the EU relatively successfully completed the first phase of negotiations on Brexit and the pound increased muscle throughout the market. Then, the European Central Bank announced the completion of the stimulating program in September 2018, after which the euro regained its positions in almost all pairs.
By and large, the dynamics of the euro / pound pair is determined by these three fundamental factors: 1) the completion time of the QE; 2) prospects of Breckzite; 3) the timing and rate of rate increase by the English regulator. All other events are of secondary importance, having a temporary impact on the cross. Even the multi-month coalition in Germany did not shake the position of the euro. After a slight decline, the single currency resumed its growth thanks to strong macroeconomic statistics.
The January meeting of the ECB surprised many traders was very optimistic. And although the European regulator did not correct its language, tightening the rhetoric (as previously thought), he did not focus on the gradual slowing of inflation. The European currency again received some support, as the date of completion of QE remains unchanged, September of this year.
Yesterday's speech by Mario Draghi was actually ignored by the market due to the lack of a clear position. The head of the ECB spoke in a traditional manner: veiled phrases, a lack of specifics and a lot of mutually exclusive phrases. The essence of his speech was reduced to the fact that the current stimulating program supports economic growth, but does not fully ensure the growth of inflation. On the other hand, Draghi suggested that the weakening of the European economy could be more ambitious, and this fact will affect the price pressure. As an example, he cited the situation in the labor market: on the background of increased employment, wages remain on the same level. But Draghi concluded his speech on an optimistic note. In his opinion, the core inflation will resume growth throughout the year, moving to the target levels.
It should be noted that yesterday's speech by Mario Draghi quite clearly reflects the current policy of the ECB: the regulator says neither "no" nor "yes", rather abstractly assessing the current situation. Such a wait-and-see attitude, on the one hand, supports the euro, but on the other hand, it does not give rise to full growth, since European inflation has stopped its growth.
That is why tomorrow's release of data on the growth of the consumer price index in Europe plays such a significant role. The consensus forecast says that the figure will decrease again - this time to 1.2% (the core index should remain at the same level - 1%). Such dynamics, of course, will put pressure on the euro (and even more so if the decline will be more large-scale). But if the indicator at least minimally exceeds the forecast values, the European currency will receive incomparably greater support. The aforementioned deceleration of the CPI is partly due to prices, so any changes in the positive direction will ensure the European growth everywhere.
The pound, in turn, is also in anticipation of an extremely important event that will take place on Friday. It is about the speech of British Prime Minister Teresa May, who will outline her vision of the transition period after the country leaves the EU. As is known, recently London and Brussels have exchanged rather harsh statements, voicing in advance unacceptable demands.
This "verbal battle" restrains the growth of the British currency, eclipsing even the "hawkish" intentions of the Bank of England. Let me remind you that Mark Carney recently confirmed that the regulator can reconsider its earlier plans to tighten monetary policy while accelerating the pace of rate hikes. After that, traders started talking about raising rates in May, whereas earlier experts bets on the second half of the year. Despite such a powerful fundamental factor, the pound remains in the shadow of Brexit, especially on the eve of the second stage of negotiations.
Speech by Theresa May may do in this matter, and the market will switch to the topic of monetary prospects, where the pound has an undisputed advantage over the euro. However, this will happen only if the position of May will be of a "peaceful" nature, offering a compromise. If the prime minister allows the possibility of withdrawing from the EU without a deal and voicing a categorical belligerent strategy, the pound will fail throughout the market.
Thus, the choice of trading strategy for the pair EUR / GBP depends on the current situation. If the European CPI exceeds the forecasted level, then long positions (at least until Friday) with a target price of 0.8915 (the upper limit of the Kumo cloud on the weekly chart) will definitely be in priority. Pound, in any case, will not be able to oppose the European currency any arguments in anticipation of the British prime minister's speech. But on Friday, open deals on the pair are better closed: the future prospect of the cross will depend solely on the position of Theresa May.
