EUR/USD. Dollar's fragile position and deceptiveness of the China issue

The downward momentum of the EUR/USD pair faded in the middle of the 18th figure. Now traders are faced with a difficult choice, given the contradictory fundamental picture. Neither the bears nor the bulls of the pair have enough weighty arguments to lure investors to their side. As a result, the price stands still waiting for the next news impulse.

What happened?

As a rule, one of them dominates all news items during the day - whether it is a macroeconomic report or a comment by a politician/official. But now the market has a different situation, more complicated from the point of view of fundamental analysis. The market receives a lot of contradictory information that confuses traders and analysts. This explains the flat for the EUR/USD pair – in contrast to positive news, negative news comes and vice versa.

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In general, the focus of the market is now on US-China relations. And if at the beginning of the week the dollar was losing ground amid the strengthening of anti-Chinese rhetoric on the part of US President Donald Trump, then yesterday the situation turned 180 degrees. The fact is that, according to authoritative news resource Bloomberg, the United States and China are still preparing for joint negotiations, although they do not advertise this in the public plane. It is worth recalling here that literally the day before yesterday, Trump made a loud statement that he refused to negotiate with Beijing. Along the way, he again accused China of spreading the coronavirus (negligent attitude to the epidemic), saying that he "does not want to talk to this country."

But, as it turned out a little later, in fact, the White House not only wants to conduct a dialogue with China, but is already in the stage of "building bridges." According to Bloomberg sources, representatives of the countries are holding consultations, paving the way for negotiations at a higher level. Moreover, today representatives of the Ministry of Commerce of China indirectly confirmed these rumors, saying that "both sides are in favor of continuing the dialogue, which will resume very soon." And although he did not speak about any specific dates, what was said was enough for the dollar to restore its positions throughout the market.

This fundamental factor is clearly on the side of the US currency. But all other factors put pressure on the greenback in one way or another.

For example, today's release on the data on the US labor market turned out to be worse than predicted values. First of all, we are talking about the increase in the number of initial applications for unemployment benefits. This indicator has been steadily declining for 11 weeks starting in May, reflecting the recovery in the US labor market. But then the weekly indicators began to come out in disarray, often exceeding the forecast values. This is what happened today: according to forecasts, the number of initial applications should have increased by 930,000. But in reality, the indicator jumped by 1,106,000. Let me remind you that the last Nonfarm data pleased the dollar bulls - the number of people employed in the non-agricultural sector increased by 1,763,000 (with a forecast of growth of 1.5 million). The unemployment rate also fell to 10.3%. But here it is worth noting that Nonfarm are two weeks behind the reports on claims for unemployment benefits. Therefore, given the dynamics of these reports, the August figures for Nonfarm could be disappointing. In addition, the manufacturing index of the Fed-Philadelphia was also published today, which also turned out to be in the red zone (a slowdown was recorded to 17 points from the previous 21-point value).

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In addition to macroeconomic reports, the dollar is also under pressure from the domestic political situation in the United States, in the context of the adoption of a long-suffering bill to provide additional assistance to the country's economy. Here, the information is also contradictory: according to some representatives of the White House, talks have finally reached an impasse. According to other representatives of the administration, the parties can still sit down at the negotiating table. At the moment the pendulum has swung towards a negative scenario: apparently, the bill will not be agreed until at least September. Yesterday, there was hope that Democrats would support a truncated version of this bill, but later representatives of the Democratic party flatly refused such a proposal.

How to trade?

As you can see, the fundamental background for the euro-dollar pair is contradictory. And yet, in my opinion, the pair retains the potential for its further growth. The fact is that the US currency is now being kept afloat mainly due to the Chinese issue. Rumors that the parties may resume negotiations in the near future are supporting the dollar bulls. But the fact of the matter is that information about this is either unofficial, or semi-official - from the Chinese side. The White House, including Trump, are voicing anti-Chinese rhetoric amid the dire coronavirus crisis. In my opinion, Trump will adhere to such tactics until the end of the presidential race. And this means that in the foreseeable future he will again voice aggressive rhetoric against China (for example, in the context of sanctions against Alibaba). In this case, dollar bulls will lose an advantage, and buyers of EUR/USD will be able to regain their lost positions. This means that longs can be viewed from current positions with the first target at 1.1930 (the upper line of the Bollinger Bands indicator on the daily chart).

The material has been provided by InstaForex Company - www.instaforex.com