22.02.2019 01:07 AM
EUR/USD. Weak US data failed to instill confidence in buyers

At the beginning of the US session, the dollar index fell sharply, dropping in a matter of minutes to the level of 96.2 points. Such a breakthrough was due to the release of disappointing data on the growth of orders for durable goods in the US. Contrary to positive forecasts, the total volume of orders grew by only 1.2% (instead of the expected 1.6%), and excluding transport - by only 0.1% (with a forecast of 0.3%). And although the de facto indicator showed growth, it was much weaker than market expectations. By itself, this fact is not critical, but it aggravated the reaction to the Federal Reserve's minutes published the previous day. As a result, bulls of the EUR/USD pair managed to seize the initiative and tested the resistance of 1.1370 (the middle line of the Bollinger Bands indicator on the daily chart).

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The US currency fell throughout the market not only because of weak macroeconomic reports. Although, in addition to the disappointing indicator of Durable Goods Orders, today the business activity index in the manufacturing sector of the Federal Reserve Bank of Philadelphia was released, which also showed a very negative trend. In February, the indicator sharply fell into the negative area (-4.1 points) with a growth forecast to 14 points. Apart from the fact that the release turned out to be much worse than the forecast, the indicator has set an anti-record: the index has not fallen below zero since March 2016.

The economy was not the only factor that set the tone for today's trade. The fact is that this week another round of trade negotiations between the US and China started. The financial world closely monitors their dynamics, and according to insider information, the likelihood of concluding a "big deal" is very high. According to American journalists, the participants in the dialogue are working on six "memoranda of understanding". These documents will outline the structural issues - in particular, we are talking about intellectual property rights, agriculture, monetary policy and cyberspace. And although these are just "protocols of intent," they will form the basis of a future deal, the key details of which will be discussed by the leaders of the PRC and the United States in person.

According to available information, the parties are also discussing a list of priority measures, which includes ten points. China allegedly agreed to fulfill most of the proposed list - for example, Beijing will increase the purchase of American agricultural products (soybeans, corn and wheat) by $30 billion (as a result, these volumes will exceed even the "pre-war" figures). On the one hand, this is a good sign for those who are awaiting a deal. But, on the other hand, China can still be conscientious in more sensitive issues for Beijing (in particular, regarding the regulation of the yuan). Therefore, alertness in the markets remains, and the growth of the euro/dollar pair is uncertain.

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It is noteworthy that today the traders actually ignored the speech of the Fed representative James Bullard (he has the right to vote this year). And although he for the last 8 months consistently takes a softer stance, today's speech can be attributed to a number of the most "dovish". He made a reduction in interest rates this year, adding that this scenario is "not a baseline". The last time Rafael Bostic talked about a possible interest rate reduction was back in early January, and this statement provoked strong volatility for the EUR/USD pair.

Today, the reaction to the words of Bullard was minimal. Most likely, this is due to yesterday's release of the minutes of the last Fed meeting. The regulator clearly enough outlined the prospects for monetary policy and explained - under what conditions the rate will be increased (with an unexpected "spurt" of inflation). The issue of rate cuts was not even discussed, therefore this decision is clearly not on the Fed's agenda. Therefore, the market reacted to the words of Bullard accordingly. Although the American regulator has softened its position, the number of supporters of the rate cut (especially with the right to vote this year) clearly does not prevail.

Thus, today's trading day reflected the general mood in the foreign exchange market. So, bears of the EUR/USD "stumbled" on the Fed minutes, which confirmed the "dovish" intentions of the US regulator. In turn, the bulls of the pair are also not able to show character: despite several upward impulses, the price was not able to break through the support level of 1.1370 (the average line of the Bollinger Bands indicator on the daily chart) to approach the next key level of 1.1390 (the lower limit of the Kumo cloud). Overcoming these levels would allow the pair to enter the 14th figure, but the uncertain behavior of traders reduces the likelihood of this scenario.

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As a result, the pair remained within the wide-range flat again. Despite unsuccessful attempts to grow, the priority is still with the upward movement. Bears of EUR/USD will reverse the situation in their favor only when securing below 1.1235 (the lower line of the Bollinger Bands on the daily chart).

Irina Manzenko,
ইন্সটাফরেক্সের বিশ্লেষণ বিশেষজ্ঞ
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