Traders of the euro/dollar pair are waiting for the key event of this week - the January meeting of the European Central Bank. At the moment, several scenarios of tomorrow's meeting are discussed in the market, however, most analysts are inclined to think that Mario Draghi will put pressure on the euro with a "dovish" rhetoric. The only question is whether the head of the ECB will be able to convince the market of the truth of its intentions - especially with regard to the extension of the stimulating program.
A year ago the situation was radically different. The European economy allowed the head of the ECB to assess its state in its own way, depending on the objectives pursued. It either focused on weak inflation, while allowing the possibility of easing the terms of monetary policy, or noted the growth of some macroeconomic indicators, declaring a gradual recovery of the eurozone economy. Figuratively speaking, Draghi chose the condition according to the situation - "the glass is half full or half empty", influencing the sentiment of the market.
To date, such maneuverability is excluded. The growth of the world economy has also affected the economic performance of the European Union. According to preliminary estimates, the eurozone economy last year grew at the fastest pace in the last decade, that is, since the crisis of 2008. Practically all 30 EU countries demonstrated positive dynamics to some extent, which affected the overall indicator.
Unemployment has been consistently declining for more than a year (having reached historic lows in Poland and Germany), and optimism in the business environment of European businessmen is only growing. In particular, the indicator of sales of cars in Europe last year exceeded 10-year values, demonstrating consumer activity. In general, the corporate profits of European companies in the past year were "on top" compared to similar indicators of the past.
It is necessary to note the indirect factors that have a beneficial effect on the European economy. In particular, we are talking about the effective voyage of the President of France to China, where long-term contracts were concluded (among them - the contract between China and the French company Airbus for the supply of over 180 aircraft).
Such a fundamental background will not allow Mario Draghi to pessimistically assess the economic prospects of Europe. But he has several levers of influence in his arsenal that can reduce the exchange value of the euro.
First of all, the head of the European regulator can directly link the growth of the European currency with low inflation. Moreover, according to some experts, the ECB will again include in the text of the accompanying statement the phrase that "the volatility of the euro is a source of uncertainty, and therefore requires additional monitoring." In September last year, the regulator already used a similar wording, after which the EURUSD pair during the following month fell from the 20th figure by 500 points. Although, in my opinion, the decline in the pair at that time was due not to the weakness of the euro, but to the appreciation of the dollar against the backdrop of expectations related to the tax reform.
And although the European regulator can not target the exchange rate, Draghi can link the exchange value of the euro with the rate of inflation, and therefore - with the determination of the ECB to complete the QE. Obviously, in this case, the regulator will mention the December deceleration of the consumer price index, having projected this on the increased volatility of EURUSD.
In addition, Mario Draghi can dispel hopes for tougher statement of the regulator, although such intentions were voiced at the December meeting of the ECB. The published minutes of this meeting provoked the growth of the euro, which (by all appearances) surpassed the expectations of all - both ordinary traders and members of the ECB. Now Draghi will have to take a defensive position, so that further growth of the single currency does not negate the achievements of last year.
Thus, the position of Mario Draghi at tomorrow's meeting is very predictable. However, this predictability may prevent him from achieving the desired result. The general certainty that he will voice a "dovish" rhetoric, can level the expected effect.
In addition, the euro-dollar pair is growing not only because of the strengthening of the European currency. The US currency was under strong pressure yesterday after unexpected comments by US Secretary of State Steven Mnuchin that a weak national currency will only support the country's export sector. Against the backdrop of weak inflation and the vague position of the "renewed" Fed, such statements provoked another wave of dollar sales.
From a technical point of view, everything indicates that the pair is ready to breakthrough the next height at the level of the 25th figure. All the older timeframes speak in favor of further growth, taking into account the signals of the trend indicators. The nearest support level is located at 1.2190 (the Tenkan-sen line on the daily chart). The main support is 1.1880 (the middle line of the Bollinger Bands indicator on the weekly chart). If the European Central Bank manages to reduce the price below this target, it will be possible to talk about a full-fledged trend reversal. However, in my opinion, this scenario looks unlikely.
