EUR / USD. 1:0 in favor of the euro

The United States and the European Union agreed on the abolition of trade duties and barriers. This news broke over financial markets yesterday by the end of the US session. Suddenly, the positive outcome of the meeting between Donald Trump and Jean-Claude Juncker helped the bulls EUR / USD return to the 17th figure after the pair had been trampled all day in a narrow-range flute.

The success of the negotiations at the White House was indeed unexpected. On the eve of this meeting, many factors said that the trade war between the US and the EU will continue. For example, the European Commissioner for Trade reported that the EU is preparing new duties on American goods, totaling $ 20 billion, in case the Americans impose duties on European cars. On the same day, the German foreign minister said that Europe would not allow talking with itself with the language of ultimatums and is able to respond with symmetrical measures of an economic nature.

Also one of the representatives of the European Commission reported that Jean-Claude Juncker went to the White House "without any trade proposal." Moreover, the press reported that the head of the EC will suggest Trump to create a customs agreement between the States and the EU, as well as with third countries, exporting cars. According to the overwhelming majority of experts, this idea was initially doomed to failure, since the implementation of such projects takes too much time.

Against the background of such a "preview", traders did not expect a positive outcome of the meeting. But in the end, it turned out this way. Donald Trump said that the parties agreed to create a working group on trade relations and will soon begin negotiations on import duties on steel and aluminum.

However, despite such a fundamental success of Brussels, the reaction of the euro was rather modest. Paired with the dollar, the single currency entered the 17th figure, but could not even test the first resistance level (the top line of the BB on D1), which was very close at 1.1755. In the cross-pairs, the euro also behaves quite insecurely, in the pairs EUR / CHF, EUR / GBP, and EUR / JPY yesterday's success was leveled by a downward movement during the Asian session.

The reason is obvious, traders are nervous because of today's meeting of the European Central Bank. Too many "hawkish" rumors preceded today's event so market participants are reasonably afraid of denials by Mario Draghi. After all, during the past few weeks, unofficial but extremely optimistic information on the prospects of the ECB monetary policy has come to the market. Some sources said that the rate could be increased already in September of the following year, while others did not exclude an earlier version, July 2019.

Some representatives of the European regulator cautiously confirmed the "hawkish" intentions of the ECB. However, without the designation of specific time-frames. Each of them emphasized that such decisions would be made only if the key macroeconomic indicators (primarily inflation indicators) demonstrate sustainable growth. That is why the euro's growth stalled after the June inflation index was revised downwards by 0.9% instead of the original one-percent level. And although we are talking about the fact that the figure returned to the May level, this fact cooled the heat of the bulls EUR / USD.


In my opinion, today, the regulator will keep a cautious approach to the prospects of monetary policy. Despite Juncker's success in Washington, Mario Draghi can focus on the US-China trade conflict, which is fraught with a slowdown in the global economy. Also, the head of the ECB can pay attention to the dynamics of PMI Composite (the index of business activity in the euro area), which in July came out at 54.3 points, although at the beginning of the year this indicator was almost at the 59th mark. This indicates a slowdown in many economic macro indicators.

In other words, the probability of voicing "pigeon" rhetoric from Mario Draghi is very high. He certainly will not announce tightening of monetary policy, let alone talk about any temporary guidelines. His cautious approach will return EUR / USD to the framework of the 16th figure because of general disappointments. Deeper decline of the pair is unlikely, after the publication of revised data on European inflation, the market has partly played the "pigeon" reaction of the ECB.


But if, contrary to the expectations of the majority of Draghi, optimistic assessments are made regarding the growth of inflation and the European economy as a whole, the euro will receive a powerful impetus for its growth. In this case, the pair will break through not only resistance level of 1.1755, but also can test the 18th figure. In view of yesterday's Washington events, this option cannot be ruled out either. In any case, the July meeting will not be "passing", the rhetoric of the head of the ECB will play a key role in determining the vector of the euro movement in the medium term.

The material has been provided by InstaForex Company -