The euro/dollar pair froze in anticipation of the January meeting of the European Central Bank, which will be held tomorrow. After a sharp decline in the area of the 10th figure, the price has consolidated today, while demonstrating weak movements within the 20-point range. At the same time, the negative effect of yesterday's statement by Donald Trump gradually became unsuccessful - partly due to his subsequent comments.
Let me remind you that after a long pause, the US president threatened Brussels again with the introduction of duties on European cars and spare parts - "if the parties do not conclude a trade agreement on the terms of Washington." After this statement, currency exchange traders were seriously worried - and quite reasonably, given the possible consequences of a new trade war. Indeed, the key macroeconomic indicators of the eurozone have just begun to show signs of growth after a significant decline in the second half of last year. Obviously, the bulls of the EUR/USD pair are completely unnecessary for the trade conflict between the USA and the EU, especially against the backdrop of recent trends in the European economy. Therefore, the threats of the head of the White House acted on the pair accordingly - the price interrupted its growth and returned to the 10th figure.
Nevertheless, Trump's subsequent comments didn't sound so "warlike" anymore. He also said that the deadline for the negotiation process between Washington and Brussels has not yet been determined while at the Davos Economic Forum. At the same time, he expressed the hope that the parties will conclude an agreement with the European Union before the presidential election in the United States, that is, until November of this year. Yesterday, he also did not talk about any deadlines - according to him, Europeans themselves "know what dates are in question." In other words, judging by the rhetoric of the American leader, a trade war, if it does, doesn't come in the coming days (although the initial threats sounded that way) - the negotiation process between Washington and Brussels is still ongoing.
Thus, the EUR/USD pair suspended its decline against the background of the changed fundamental picture - the bears lost weighty arguments for a "trip to the downside". However, buyers are not in a hurry to open long positions since they are still waiting for the main interest of this week to be resolved - will Christine Lagarde appreciate the latest "achievements" of the European economy or does the rhetoric of the head of the ECB remain just as soft?
According to the general forecast of economists, the European Central Bank will keep the monetary policy parameters in the same form tomorrow, but at the same time, more optimistic about the prospects for economic growth in the eurozone. The implementation of this scenario will support the euro. Firstly, it will be possible to say with confidence that in the foreseeable future (at least until the middle of this year) the regulator will take a wait-and-see attitude, that is, the risk of monetary policy easing will be practically zero. Secondly, it will be possible to discuss the issue of raising the rate in such a fundamental scenario - so far hypothetically, but still.
If European inflation will continue to show growth, and industrial production in key EU countries will "revive", then the probability of tightening monetary policy at the end of the current or early 2021 cannot be excluded. Moreover, there are already certain prerequisites for the implementation of such a scenario. The growth of the oil market, the pause in the trade war between the US and China, and the "soft" Brexit - all these factors play in favor of the overall growth of the European economy. Recent ZEW reports eloquently testify to this, while key macroeconomic releases show a positive trend. First of all, we are talking about inflation. The general consumer price index in December reached 1.3% from the previous value of 1.0%. Core inflation also showed growth - the core index was at the same level as in November, that is, at around 1.3%.
In addition, Christine Lagarde may appeal to the governments of European countries again to use the surplus of their budgets. Over the past months, she has repeatedly called on some EU countries (primarily Germany and the Netherlands) with their "chronic budget surpluses" to increase investment and government spending. Tomorrow, she can convey a veiled "hello" to these countries once again. In addition, the head of the ECB may respond positively to the implementation of the European Green Rate investment program, which sums up to one trillion euros.
Thus, the European Central Bank is unlikely to announce any concrete theses regarding the prospects of monetary policy tomorrow. At the same time, Lagarde may take a more "hawkish" position relative to the December meeting. This will allow the bulls of the EUR/USD pair to return to the area of the 11th figure. The nearest resistance level is located at 1.1140 (the middle line of the Bollinger Bands on the daily chart). Now, if the head of the ECB maintains a cautious look at the current situation, voicing pessimistic arguments, then the pair will continue its downward movement, declining to the base of the 10th figure.
