The euro-dollar pair is slowly slipping to annual minima, which is towards the base of the 13th figure. Data on the growth of European inflation did not help the single currency, although the figure showed a projected increase. Thus, the consumer price index rose to 2.1%, while the base index recovered to 1.1%. But the pair bulls could not use this information as a reason for a price correction, the dollar still maintains a strong position, and the euro is under the pressure of the Italian problem.
Despite the fact that the EUR/USD pair is dominated by the southern trend. Bears have a rather difficult price reduction, especially when the pair passes the 1.1340 line. Although in general, the fundamental picture today is in favor of the American currency. The dollar index today came to the boundaries of 97 points, when the last time he was at such heights was in June last year. Greenback feels support from the Fed, which intends to further tighten monetary policy. At least, the latest inflation data did not "frighten" Fed members and they did not soften their rhetoric.
The situation on the stock markets also does not care about the Fed, despite the frequent "collapses" of key indices. In particular, the head of the Federal Reserve Bank of Cleveland Loretta Mester urged not to panic last Friday because, in her opinion, there is now a "natural process for financial markets." She also stressed that market volatility will not affect the determination of the Fed members regarding further action. In fairness it should be noted that Mester belongs to the "hawk" wing of the Fed, however, its position, as a rule, is shared by many of its colleagues.
Macroeconomic statistics also continues to support the dollar as the data on GDP growth were better than expected. Today's report from ADP showed a positive trend with an increase of 227 thousand is the best result since February of this year. The labor cost index jumped to 0.8 %. Also, the Fed is closely monitoring the dynamics of the last indicator, as it is a leading indicator of consumer inflation in the country. This is quite logical, since by increasing labor costs, employers increase the cost of goods and thereby provoke an increase in price pressure. Therefore, today's result somewhat leveled the fears of dollar bulls regarding the weak dynamics of the main indicator of inflation.
Thus, the fundamental background for the US dollar, figuratively speaking, is marked with a plus sign, while the news picture for the euro is clearly negative. Primarily, its is because of Italy, Ignacio Visco, chairman of the Italian Central Bank (who is also a member of the Governing Council of the ECB), said today that the increase in the yield spread of Italian bonds and German bonds increases the risk of default.
He also drew attention to the dynamics of the country's GDP, recalling that on a monthly basis, the figure went to zero. In his opinion, this was due to the weak performance of Italian companies, and this trend will only get worse this year. This problem echoes the other "misfortune": We are talking about reducing the cost of bank shares amid rising credit costs. In general, his speech was extremely pessimistic. The essence of which was the need to normalize relations between Rome and Brussels.
But these relations, to put it mildly, are far from ideal. At the beginning of the next week, November 5, the draft budget of Italy will be discussed at a meeting of EU ministers. The European Commission has already managed to criticize and reject the financial document, sending it for revision. However, Rome stubbornly leads its game after the revised draft budget was sent to the president of the country today. Then, it must be approved by the relevant committees of the parliament and the parliament as a whole.
All of this should happen before the end of November, but the time gap plays a minor role here. Rome's actions suggest that Italians are not ready to compromise. As a concession, they agreed only to reduce payments to those municipalities where over-pensions for former top officials will not be canceled. However, this "curtsy" is hardly a compromise solution, so the confrontation between Rome and Brussels will certainly continue.
Brexit has little support for the European currency. The main negotiator from Britain, Dominic Raab, has once again declared today that the parties are "very close" to concluding an agreement. His optimistic performance supported the pound and, indirectly, the euro as well. But, given the frequency of false alarms regarding prior arrangements, this fundamental factor will have a temporary impact on the pair.
In terms of technical analysis, bulls of the EUR/USD pair can only hope for a strong support level of 1.1301 (minimum of the year and the bottom line of the Bollinger Bands on the daily and weekly charts). Bears are not too tough for this target But if the fundamental background is still so "black and white", then traders can push through this level. in this case, the chance for a further decline will be opened up to the 10th figure.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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