The European currency has suspended its triumphal procession for several hours today - conflicting data on inflation growth in the eurozone slightly cooled the bulls of the EUR/USD pair. Buyers stepped back, but did not capitulate, staying within the 11th figure. The fact is that the general consumer price index for February turned out to be lower than forecasted values (the indicator reached 1.2%, and the consensus forecast was 1.4%). While core inflation came out in accordance with the forecast, at around 1.2%. The producer price index also showed contradictory dynamics: on an annualized basis, the indicator remained in the negative area, dropping to the level of -0.5%, but on a monthly basis it rose to 0.4% (this is the best result since October 2018).
The market, of course, focused on the negative aspects of today's release, and the EUR/USD bulls were forced to retreat from the daily high - but literally a few hours before the US session started. Looking ahead, it should be noted that short positions in the pair are now in any case extremely risky (even with price pullbacks), since the dollar remains vulnerable. Moreover, the rhetoric of the ECB representatives continues to amaze with their equanimity, while Fed members today unexpectedly and unscheduled reduced their interest rates by 50 basis points at once. This dissonance keeps the euro afloat, despite the slowdown in general inflation in the eurozone.
Let me remind you that Vice President of the ECB Luis de Guindos yesterday unexpectedly announced that it was necessary to respond to the current situation not with the help of monetary policy, but with the help of financial policy. Today, a similar position was voiced by ECB member Robert Holtzman (head of the central bank of Austria). In his opinion, those actions taken by the regulator are secondary with respect to fiscal support. At the same time, he clarified that at the moment he would not vote for a rate cut. His colleague, the head of the central bank of Slovakia, Peter Kazimir, also said that in the near future there is no need for easing monetary policy. In turn, the head of the central bank, Christine Lagarde, has for several months been calling for tax incentives for Germany and the Netherlands, which could use their budget surpluses.
In other words, the European Central Bank so far does not intend to soften the terms of monetary policy - instead, central bank officials are urging EU leaders to increase fiscal stimulus in their countries. It is likely that this position of the members of the European regulator is explained by the existing split in the ECB camp - after all, the resumption of QE and a decrease in the interest rate last year were not easy for Lagarde. After the September meeting, many central bank officials criticized the actions of the regulator. In particular, we are talking about Benoit Coeure, Jens Weidmann, Klaas Knot and Villeroy de Galhau. Given the positions voiced this week by Guindos, Holtzman and Kazimir, it can be assumed that the ECB will maintain a wait-and-see attitude in the near future.
But on the other side of the ocean, a whole campaign was launched to campaign for lowering the interest rate. US President Donald Trump today cited the Reserve Bank of Australia as an example, which cut interest rates by 25 basis points. According to him, the Federal Reserve "forces Americans to pay more." He added that the Fed's policies put pressure on exporters and deprives the country of their competitive advantage. "We need to lower the rate more, and Jerome Powell's policy is wrong," the head of the White House concluded. According to reporters from Bloomberg, the head of the National Economic Council under the White House of the US, Larry Kudlow and Finance Minister Stephen Mnuchin, also insist on reducing the rate. Representatives of the dovish wing of the Fed also called for easing monetary policy, increasing pressure on the centrists and on the hawks. As a result, the Fed surrendered and trimmed the rate immediately by half a percent.
Meanwhile, the coronavirus continues to march around the planet, including on the territory of the United States of America. There have already been 91 recorded cases of coronavirus and six deaths from diseases caused by COVID-19. Just the day before yesterday, the number of cases was significantly less - 60 people. Dynamics does not bode well - in particular, Trump has already stated that he is considering the possibility of introducing additional restrictions on entry into the country. The increase in the number of sick and dead from COVID-19 in the United States will put further pressure on Fed members.
Thus, despite the fact that in Europe the number of infected is estimated at hundreds, the dollar looks like the "affected" currency in the EUR/USD pair - primarily due to the more restrained position of the ECB representatives. The Fed was under tremendous pressure, including from the top officials of the state, which is why it is not surprising that the US regulator made such a non-standard decision today.
All this suggests that the EUR/USD pair retains the potential for its further growth - to the nearest resistance level of 1.1240, which corresponds to the upper boundary of the Kumo cloud on the weekly chart.
The material has been provided by InstaForex Company - www.instaforex.com