EUR/USD: in anticipation of a narrow market and European inflation

The euro-dollar pair was stuck in a flat ahead of the period of low liquidity and the following weekend. Tomorrow, American trading floors will be closed due to the celebration of Thanksgiving in the United States. On the other hand, Friday will formally be a working day, but, as a rule, the next day after the holiday on the eve of the weekend is characterized by extremely low liquidity. Therefore, the market will fully return to work only on Monday. In view of these circumstances, traders are now very cautious: EUR/USD has been trading for the third day within a narrow price range, without actually leaving the area of 1.1005-1025.

Moreover, the pair demonstrates indecision as it stuck at the base of the 10th figure, although the general market sentiment is now in favor of the American currency. The dollar index, in turn, is inspired by news from the front of the trade war: both the White House and Beijing are now increasingly talking about the high probability of signing the first stage of the trade agreement. For the first time in a long time, Trump replaced anger with mercy - he expressed confidence that the deal would be concluded "in the very near future" instead of threats about the introduction of new duties. In addition, yesterday's telephone conversation between Vice Premier of the State Council of the People's Republic of China Liu He with the US representative at the trade talks Robert Lighthizer and the head of the US Treasury Steven Mnuchin only strengthened market expectations.


According to most experts, the parties should come to some decision before the first deadline, which is set for December 15. Let me remind you that at the moment, the United States has duties on Chinese goods worth 360 billion dollars. However, on December 15, Washington could impose additional duties on goods worth $ 160 billion. Donald Trump planned to introduce these duties in early autumn, but then postponed his decision to mid-December. TThe formal reason was that China celebrated the date of creation of the state at that time, and the American President allegedly did not want to spoil the Chinese holiday. But in fact, Trump is not the first to use such a technique: threatening to increase sanctions, he puts pressure on his opponents, in this case - China. Whatever it was, but on the eve of December 15, the White House will have to decide: to introduce the above fees or not. If the negotiators sign a deal, then the question will disappear by itself. Otherwise, everything will depend on how serious the disagreements of the parties will be - the White House will either postpone the date again (tentatively for January-February), or decide to escalate the trade war.

It is worth recognizing that some experts are now quite skeptical of the intentions of the parties to sign the deal in the near future. Washington and Beijing have repeatedly voiced optimistic theories regarding the prospects for dialogue, but as a result, the leaders of the countries refused to make significant concessions to each other, after which the negotiation process came to a standstill once again. At the same time, the dollar index reflexively responds to the comments of Trump and official representatives of the PRC, however, these fundamental factors are not able to provoke a rally of the American currency. Paired with the euro, the dollar is still marking in place at the base of the 10th figure, despite the existing prerequisites for a decline. Thus, the single currency continues to be under a certain pressure, against the background of the "dovish" intentions of the representatives of the European regulator.

Meanwhile, a member of the Governing Council of the ECB, Francois Villeroy (Chairman of the Central Bank of France), said yesterday that low interest rates continue to support the EU economy - and this support will be needed for a long period of time. Confirming comments on soft monetary policy have put background pressure on the euro. If Friday's data on the growth of European inflation disappoint (although it is predicted to see minimal growth relative to the previous month), the EUR/USD pair will finally be able to approach the lower border of the price range 1.0970-1.1090 to finally gain a foothold in the 9th figure.

However, the dollar also has its own constraints. For example, the American consumer confidence index came out worse than expected - at around 125.5 points. This indicator has been decreasing for several months (to be more precise, since July), demonstrating the weakening of consumer demand in the United States, including on the eve of the Christmas shopping season. For comparison: in November last year, this index was at around 136 points.

Additionally, the bulls were embarrassed by the last speech of the head of the Fed Jerome Powell. On the one hand, he said that he was satisfied with the current rate level. Thus, he neutralized the fears of many traders that the Fed will resume the interest rate reduction cycle in the near future. These rumors particularly intensified after Powell's unexpected meeting with Trump last week. But no - the head of the Federal Reserve assured the market that the current monetary policy parameters are "optimal". However, he is quite pessimistic about the state of the American economy. He was also worried about the weak inflation, the uncertain growth in the number of employed, problems in the export sector and in the manufacturing sector. At the same time, he warned that the regulator, if necessary, is "ready to take measures" in response to changing circumstances.

Thus, the euro-dollar pair continues to be in the region of the lower border of the range 1.0970-1.1090, but dollar bulls are not yet so confident in their strengths that they can break through the lower bar of this range. The general fundamental background is now on the side of the American currency - primarily, due to optimism about the prospects for the US-Chinese dialogue. The European currency can regain its position (at least until the middle of the 10th figure), considering that German and European inflation indicators (releases are on Thursday and Friday, respectively) come out better than expected. Otherwise, the pair will finally consolidate within the 9th figure.

The material has been provided by InstaForex Company -