The European currency began the trading week with a large-scale weakening in almost all currency pairs. The market analyzed the Friday data, which were not in favor of the single European currency: inflation in the eurozone slowed to 1.4%, reducing the likelihood of tougher rhetoric from the ECB.
Although last week some of them (particularly, Ewald Nowotny, Yves Mersch and Benoit Coeure) voiced a rather decisive stance regarding the future of the stimulus program. Moreover, the potential successor to Mario Draghi - the head of the Bundesbank, Jens Weidmann - made another "hawkish" statement in a Sunday interview with the Spanish newspaper El Mundo. He said that the European Central Bank should soon establish the final date for the curtailment of the asset purchase program. In his opinion, the prospects for economic growth in Europe correspond to the "necessary requirements" for the completion of QE. Currently, the market is in limbo: the program will continue at least until the fall of this year with the possibility of further extension.
Despite such a sharp statement by Weidman, the European currency continues to show uncertainty. First, the "hawkish" position of the head of the Bundesbank does not yet find universal support among his colleagues in the ECB. Secondly, the German is not an "automatic" successor to Draghi (although his candidacy is most often mentioned.)
Here it is necessary to say a few words about the personnel prospects of the Central Bank. In fact, the struggle for the post of the head of the ECB is unfolding now (although Mario Draghi's term ends in October 2019). Spain demanded the appointment of its representative to the position of vice-president of the ECB in place of the Portuguese, Vitor Constancio, who retires in May this year. The Spaniards were outraged by the fact that their representative has not been present in the Governing Council for six years, after Jose Manuel Gonzalez-Paramo left his post. Now the place of Constancio can be taken by the Spanish ex-Minister of Finance Luis de Guindos (who, incidentally, was formerly the regional director of the American bank Lehman Brothers). Discussion of his candidacy will be held on January 22, and a possible statement will be released in February.
The given process will be indicative and in many respects preparatory in a context of the further struggle for a post of head of the ECB. Then, over the next two years, Daniel Nui (supervising the banking sector), Peter Pratt and Benoit Coeure will leave their posts. Thus, the successor to Mario Draghi will deal with the updated composition of the Board of Governors, and this fact level out the "hawkish" statements of Jens Weidmann: his appointment is still in question, and the general position of the regulator's members in 2019 may be very mild.
Against the background of an almost empty economic calendar, traders have to pay attention to such distant prospects, assessing the chances of completing QE within the framework of the announced deadlines. The release of the European consumer price index in this case played the role of a catalyst for the correction of the EURUSD pair, the need for which had been brewing for a long time.
It is worth noting that a corrective rollback in this case is a very useful thing for determining future trends. If the price remains in the price niche (the lower limit of which corresponds to the level of 1.1965), the upward trend will continue. Consequently, the price rise of EURUSD at the beginning of this year was not an impulse, but a systematic and consistent growth of the pair. Admittedly, I am more cautious of recoilless moves of 100-200 points (especially in the "thin" market): in this case, the risk of reverse peak increases at times.
What could be the reason for restoring the euro's position? In the short term, there are two information lines: the release of data on European unemployment (released tomorrow, January 9) and the publication of key data on US inflation (Friday, January 12). Data on the labor market in the EU should traditionally support the European currency: according to the overall forecast, the indicator will continue to decline and will reach 8.7% (for comparison, in July 2016, unemployment was at 10%). Also, the German data on industrial production (forecast + 1.9%) and the data on Germany's foreign trade (the forecast is also positive, both in the sector of imports and in the sector of exports) can influence the dynamics of the euro.
But American inflation can "traditionally" weaken the dollar. The preliminary forecast looks weak - only 0.2% in monthly terms and 2.1% in annual terms. If the indicator is at least 0.1% less than the expected result, the US currency will again be under pressure. Last Friday, the dollar bulls were cheered up at the expense of the average wage, which came out at the forecasted level (+ 0.3%). But this fact looks too shaky: if the CPI does not confirm the dynamics of growth in inflation indicators, the dollar sell-off will not take long.
Thus, the European currency paired with the dollar is now under pressure, but definitely "bury" the northern eurusd trend is not worth it. Tomorrow, and especially Friday's data, can significantly change the fundamental picture of the pair.
From a technical point of view, bulls of the euro-dollar pair need to keep the price above 1.1965 (the first level of support that corresponds to the Tenkan-sen line). The second level of support is the "round" mark 1.1900 ( Kijun-sen line). The relevance of the northern movement will be lost (at least in the medium term) in the event that the pair drops below the middle line of the Bollinger Bands indicator (i.e., it goes below 1.1885). In the meantime, the price is higher than the indicated target, the bulls of the pair have a chance and the opportunity to break the bearish sentiment.
