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Euro clings to a straw

The elections to the European Parliament, the release of data on business activity in Germany, the Eurozone for May and the publication of the minutes of the April meeting of the ECB make the euro the main contender for the role of the most interesting currency of the week by May 24. Despite the unfavorable external background, the "bulls" on EUR/USD are clinging to the trading range of 1.1135-1.1265, the break of the lower border of which can lead to the continuation of the southern hike of the main currency pair.

Looking at how the euro fell against the background of the growing probability of a disorderly Brexit and the escalation of the US-EU trade conflict in 2018, you wonder why it does not do it now. Indeed, the States are ready to impose duties on all Chinese imports, Beijing is not eager to resume negotiations, stock indices and the currency of China are falling rapidly, while Donald Trump's belief at the conclusion of the deal supports the S&P 500. The US economy looks strong, while China has to use large-scale fiscal and monetary stimulus in order not to slow down GDP growth to less than 6%.

Theoretically, the reduction in external demand will hit German exports and the eurozone economy as a whole, forcing the ECB to weaken monetary policy. The futures market has increased the chances of lowering basic rates in the first quarter of 2020 to 40%, and concerns about the "dovish" rhetoric of the minutes of the April meeting of the Governing Council keep the "bulls" on EUR/USD in check. The growing risks of monetary expansion and trade war are weighty "bearish" arguments for the euro. I associate its stability with low volatility, abnormal in the conditions of growth of global political risk.

The dynamics of the volatility of the euro and political risks

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Indeed, when eurosceptics in the run-up to the elections to the European Parliament raise their heads, and in Britain, the probability of Theresa May's resignation from the post of Prime Minister is growing, it is quite unusual to see a more or less stable euro. According to the leader of the Northern League Salvini, Italy will abandon the EU's demand for 3% of the budget deficit from GDP if its party improves its position in the elections. The coming to power in the government of former foreign minister Boris Johnson could bring down GBP/USD to 1.2, according to a forecast by Societe Generale. Given the close correlation of the pound and the euro, we can only assume at what levels EUR/USD will be quoted in this situation.

The dynamics of the euro and the pound

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The situation with business activity looks interesting. German and other European purchasing managers already knew about the escalation of the conflict between the US and China, so PMI may, in fact, be worse than forecasts of Bloomberg experts, which will put pressure on the euro. On the other hand, the fact that the White House decided to postpone the increase in import duties on cars from the EU for 6 months will allow the companies of the Old World to sigh with relief.

Technically, a breakthrough of the lower limit of the consolidation range of 1.135-1.1265 within the activation pattern "splash and a shelf" will increase risks in the implementation of the target at 161.8% according to the model AB=CD. It corresponds to 1.1.

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