EUR / USD: the storm has passed, the dollar is again under pressure

"Fear has big eyes", this is how one can characterize the situation on the foreign exchange market over the past 24 hours. Traders were seriously alarmed by the fact that the American president could impose a state of emergency in the United States, thus exacerbating the conflict between the White House and Congress. Also, the anti-risk sentiment was provoked by the behavior of the negotiators from the States and China, or rather their silence. The market interpreted this silence in its own way, reinforcing the demand for the American currency. Against this background, the EUR / USD was able to move away from local highs, showing a slight correction.


However, the EUR / USD bears did not receive adequate support from the fundamental background. Firstly, Trump's speech, contrary to many predictions, turned out to be very calm. During a special appeal to the Americans, he did not declare a state of emergency to solve the problem of financing the construction of a wall on the border with Mexico. The president actively "advertised" the advantages of this border barrier, saying at the same time that the wall "will pay off very quickly," referring to the costs associated with drug trafficking. Also, Donald Trump again accused the Democrats in a long period of "shutdown". According to him, this problem can be solved "in 45 minutes." In conclusion, he invited the leaders of both parties in Congress to the next meeting at the White House.

Traders are clearly preparing for the worst, given Trump's impulsiveness and rumors about the imposition of a state of emergency. Therefore, such a peaceful mood of the president has resumed the risk appetite in the market, and the demand for the dollar has decreased significantly. In addition, the first comments of the parties on the results of the US-China negotiations appeared in the information environment. So, the representatives of the United States declared that they had an "excellent and promising dialogue." A similar position was expressed by the Chinese. And although they did not begin to talk about the details of the meeting, their optimism instilled hope for the conclusion of a broad trading deal in the foreseeable future. By the way, even Trump in his Twitter noted that "negotiations with China are going very well". Again, without going into details.

In other words, the events of the past 12 hours leveled the panic that supported the American currency yesterday. Now greenback is again alone with its problems, the relevance of which has not disappeared anywhere. We are talking about slowing the pace of tightening the monetary policy of the Fed against the background of a decrease in key macroeconomic indicators. In recent days, this topic is no longer being actively discussed, but today there will be an excellent reason for this. In the evening, the States will publish the minutes of the last Fed meeting. In general, traders are waiting for the protocol to answer one common question: how strongly are members of the American regulator concerned about the state of the US economy?

Let me remind you that the Fed at its December meeting reduced the approximate number of rate hikes next year to two. At the same time, the regulator lowered forecasts for GDP growth and inflation, thereby justifying the decision to slow down the tightening of monetary policy. The dollar's reaction was relatively low-key. The regulator chose not the softest scenario, so the US currency held back the onslaught of sellers, although it fell in price across the entire market.

But the thing is that the point forecast is not quite a reliable guide. For example, in September, this forecast reflected a triple rate increase in 2019, but then many experts doubted its implementation. Even then, quite alarming signals have received that spoke of a slowdown in US economic growth. The results of the December meeting confirmed the concerns of traders. In other words, now many market participants doubt that the Fed will double the rate next year. In their opinion, everything will depend on the dynamics of key indicators.


The Fed's report published today will either confirm investors' concerns or maintain hope for a double rate hike this year. However, here we recall two things: first, the four members of the Fed, who had the right to vote in December, will not have it in January and beyond throughout the year. In a rotation, they will be replaced by colleagues whose views may differ from those of the "predecessors". Secondly, the pigeon position of the Fed has already been confirmed by Jerome Powell, not only at his press conference but also during subsequent speeches. Therefore, the market is ready for the Fed's soft rhetoric, and this fact will not be any surprise for traders.

In other words, one should not expect a "storm of volatility" tonight. The regulator will most likely use the published protocol to remind traders about the Fed's "dovish attitude" once again, this fact has already been taken into account in prices and is unlikely to cause a surge in EUR / USD. Nevertheless, the overall pressure on the greenback will help the pair of bulls to overcome the notorious resistance level of 1.1480 (the upper line of the Bollinger Bands on D1), in order to reach the next resistance level of 1.1515. If the protocol is surprised by "hawkish" notes (which is unlikely), then the pair will return to the 13th figure.

The material has been provided by InstaForex Company -