In the spring of 2018, the theme of trade wars overshadowed the main driving force of exchange rate formation on the Forex - the monetary policy of central banks. If in 2014-2016 the divergence in monetary policy of the ECB and the Fed pushed the USD index to 13-year highs, and in 2017 talk of normalization and convergence allowed the euro to strengthen by 14% relative to its main rival, then this year the EUR/USD pair entered the medium-term consolidation in the range of 1.215-1.255. Investors do not know what to cling to. The slowdown in the eurozone economy makes the European regulator a "dovish", and protectionism does mix all the cards.

The dispute between the US and China resembles a game of poker. Washington introduced import duties on steel and aluminum - Beijing responded with tariffs of $3 billion. The US raised rates to $50 billion - China accepted the challenge. Trump decided on $100 billion from above, knowing full well that he had more than $500 billion at his disposal. There is nothing to say to the enemy: the volume of US exports to the Asian country in 2017 was just over $130 billion. We will have to move to other areas. For example, talk about selling US Treasury bonds from the reserves of the People's Bank of China. I do not think that Beijing will not beat around the bush.

However, all this tragicomedy leaves the markets indifferent so far: the JP Morgan FX Volatility volatility index moves in a narrow range of 7.6-8% more than a month. The same thing happens with the yield of treasury bonds: an escalation of the trade conflict should lead to a reduction in the rates of the debt market and put pressure on the US dollar, but this does not happen. Such insensitivity of indicators indicates that investors do not know how to react to the factor of the trade war. Most likely, from the scoring of threats to their implementation will take several months, so that you can switch to something else. For example, the monetary policy of central banks.

Dynamics of the yield of treasury bonds and USD index

And here everything is in favor of the "bears" for EUR/USD. The eurozone economy is slowing in the first quarter, which is facilitated by bad weather, and the flu epidemic, and a strong euro, and limited potential. Even a surge in March inflation can be explained by the Easter factor. Most likely, we are talking about the usual market noise, and in the future, HCPI will continue to be characterized by sluggish dynamics. If so, the ECB will remain a "dove" for a long time and will stick to QE until the last. The Fed, on the contrary, believes that under the influence of a fiscal stimulus, US GDP will accelerate during the remainder of the year. The central bank is ready to raise rates, which allows us to talk about divergence in monetary policy. The one that pushed the US dollar upwards in 2014-2016.

Technically, if the "bears" for EUR/USD manage to gain a foothold below 1.225, the risks of implementing the target by 113% on the pattern of the "Shark" will increase. In this scenario, the "Expanding Wedge" pattern will play, and the correction in the direction 1.209-1.2115 will continue.

EUR / USD, daily chart