Traders of the euro-dollar pair are anxiously waiting for the announcement of the results of the January Federal Reserve meeting, and especially – the subsequent press conference of Jerome Powell. Retreating from the local highs, the pair is trading at the bottom of the 14th figure, demonstrating the uncertain position of both bulls and bears of the EUR/USD.
If we consider the situation in a more global aspect, we can conclude that the price has been trading in a wide-range flat of 1.13-1.1480 for several months (since October last year), not having the strength to break out of the range. The general weakness of the US currency provides weak support to the bulls of EUR/USD against the background of the ongoing problems of the single currency – from the slowdown of inflation and GDP in the eurozone, ending with political battles in Italy, France and Britain. For example, yesterday the price of the pair jumped to the middle of the 14th figure against the background of the highest decline in the US indicator of consumer confidence (the indicator came out at 120.2 – the worst result since July 2017). But today the effect of this release has been offset by news from Germany.
Thus, the Ministry of Economy of Germany reported that they are reducing their forecast for the growth of the national economy to one percent for this year. This is a significant revision, as the Germans previously hoped to grow to 1.8%. Talk about this went before, but today there was an official verdict, which only heightened the alarm about the prospects for the ECB's monetary policy. In addition, data on inflation in Germany was published, which also disappointed the market. On a monthly basis, the consumer price index dropped to -0.8% (for the first time since January 2018, falling to the negative area), and in annual terms to 1.4%, continuing the negative trend for the third month in a row.
Such weak German figures, which is rightly called the "locomotive of the European economy," speak of one thing: Mario Draghi will continue to voice a soft rhetoric, putting pressure on the European currency. If in the period of the next quarter the macroeconomic data will be released in a similar way, the regulator will finally postpone the date of the first rate increase for 2020. And although many experts have already come to terms with this, the European Central Bank is still intriguing: at least at its last meeting, members of the regulator stated that the issue of tightening monetary policy will not be considered "at least until the end of summer."
However, the dollar so far also has nothing to "boast". Following the resumption of government work in the United States, it started to publish belated statistics, and many releases are frankly disappointing. In addition to the consumer confidence indicator mentioned above, depressing data on the US housing market was also published this week. Thus, the index of pending transactions in the housing market fell to -2.2% (the worst result since October last year), while experts expected growth to 0.5%. Previous results were also revised downwards, and in general, this indicator, which is an early indicator of the activity of the housing market, has been falling for the 12th consecutive month.
But in this case, EUR/USD traders could not take advantage of the situation: the short-term upward impulse was extinguished by Brexit, or rather a new round of confrontation between London and Brussels. After the British Parliament adopted the "Brady amendment", obliging the government to find an alternative to the backstop mechanism, the prospects of "hard" Brexit has once again loomed before traders, putting pressure on both the pound and the euro. Many leaders of European countries have already managed to say that they are not going to revise the key points of the agreement and even more so – to abandon the "safety" backstop mechanism. A similar position was expressed by EU leaders - the head of the European Council, the European Parliament and the European Commission. Representatives of the latter Department today said that they had prepared measures in the event of a hard Brexit - thereby making it clear that this scenario is not excluded.
Thus, both the dollar and the euro remain under pressure of fundamental factors. Each currency has its own problems, and these problems, by and large, neutralize each other. Therefore, traders are forced to trade in a flat, waiting for a powerful news impulse - either from Europe or from the United States. Such an impulse would be the today's Fed meeting – but only if Jerome Powell hints at reducing the pace of tapering the balance sheet of the US central bank.
In my opinion, this fact is a prerequisite for the upward breakthrough of the EUR/USD, as the general "dovish" attitude of the regulator is already included in the current prices. From a technical point of view, it is important for EUR/USD bulls to stay above 1.1420 in order to not lose the growth potential and approach the next resistance level of 1.1525 (the upper line of the Bollinger Bands indicator on the daily chart). Bears of the pair need to consolidate below 1.1370 - in this case, the Ichimoku indicator will form a bearish "Parade of lines" signal, and the price itself will be between the middle and lower lines of the Bollinger Bands indicator on the same timeframe.
