The euro-dollar pair still strengthened to the boundaries of the 10th figure. Such dynamics was in question just yesterday - many said that corrective growth has exhausted itself. The EUR/USD bulls could not overcome the resistance level of 1.0920 (the middle line of the Bollinger Bands indicator on the daily chart), and after a three-day growth, the price froze in a flat, in the middle of the eighth figure. But after a one-day swing, traders with invigorated strength began to get rid of the dollar, while investing in euros. It is worth noting that this time the pair is growing not only due to the weakening of the greenback. The single currency received unexpected support from the Germans, who seemed ready to begin fiscal stimulus. This plot twist was really unexpected, especially against the background of general pessimism regarding the pace of spread of the Chinese coronavirus in Europe.
Thus, information appeared in the German press that Berlin plans to allow municipal governments to temporarily exceed their budget expenditures as part of fiscal support for the country's economy. And although this information is informal, it provided significant support to the euro.
It is worth recalling that Christine Lagarde, during her first speeches as head of the ECB, urged the governments of the EU countries to use the surplus of their budgets to support the eurozone economy. First of all, she addressed the leaders of Germany and the Netherlands. According to Lagarde, these countries "with a chronic budget surplus" should increase investment and government spending.
Around the same time - that is, last fall - rumors appeared on the market that Germany could create the so-called "shadow budget" to increase government spending. The German government allegedly considered the possibility of creating this mechanism, given the slowdown in the growth of the national economy. The main goal is to increase government spending in such a way as to circumvent restrictions on public debt growth, thereby observing the rules of the European "Stability and Growth Pact." Indeed, at the end of the year before last, it was precisely for violating this Pact that Brussels was going to hold Italy accountable - Rome was facing a fine of several billion euros for exceeding the "ceiling" of the budget deficit. Apparently, then Berlin failed to create a "shadow mechanism" that would allow legally increasing government spending for the implementation of infrastructure and other projects. But the idea itself did not die: recent publications in the German press eloquently testify to this.
Officially, Germany has so far denied such intentions. Recently, a spokeswoman for the German ministry of finance said the government still held the position of "fiscal rationality." But talk about this still does not cease, because the financial impulse from Germany is especially important in the context of the subsequent actions of the European regulator. According to some experts, this step on the part of the Germans will allow members of the European regulator not to resort to further measures to soften the parameters of monetary policy - especially against the background of the existing split on this issue in the ECB.
Meanwhile, dollar bulls continue to be under pressure from speculation over the Fed's interest rate cut. After a lull, rumors about the respective intentions of the US regulator appeared on the market again. Moreover, the date of this decision was again "brought closer": if last week we discussed summer dates (June or July), then at the beginning of this week, traders started talking about lowering the rate at the April meeting. Today, some currency strategists have not ruled out the March option.
Coronavirus is to blame. The total number of people infected in the United States has increased to 60 people. 18 cases were related to trips to China or close contacts with travelers, and 42 cases were evacuated from the Diamond Princess liner. Since the new virus hit the United States, the dollar has ceased to be used as a defensive asset. Traders put at least one Fed rate cut in prices, although the likelihood of a double cut increases, as they say, "not by the day, but by the hour." Panic sentiment is now playing against the US currency.
Macroeconomic statistics also failed to support the dollar. The second estimate of US GDP growth in the fourth quarter of last year was published today. Contrary to optimistic forecasts, the indicator was not revised upwards (up to 2.2%) - it remained at the level of initial estimates. But the price index of GDP was unexpectedly revised downward - to 1.3%. Business investments have also substantially declined: this indicator has been revised to the level of -2.3% from the initial level of -1.5%. The reduction in business investment has been recorded for the third straight time, implying negative growth prospects for the US economy in the first quarter of this year.
Thus, today the fundamental background is conducive to further corrective growth of EUR/USD. The nearest resistance level is located quite high - at around 1.1080 (the upper line of the Bollinger Bands indicator on the daily chart). But to confirm the upward trend, the bulls of the pair need to gain a foothold within the 10th figure: this is a kind of key to the subsequent testing of the above price target.
