EUR/USD: Guindos’ definite statement and the anticipation of Friday’s data
The United States currency reveals development throughout the marketplace for the 2nd day in a row. With uncommon exceptions( for instance, USD/JPY), the greenback controls in all dollar sets, and for the first time considering that Might 2017, the dollar index checked the area with 98 points. The euro-dollar pair likewise set a kind of rate record, falling to two-year lows(to be more precise, to the troughs of January 2017 ). After the EUR/USD bears were able to penetrate the support level of 1.1170 (the bottom line of the Bollinger Bands indication on the everyday chart ), on the horizon, there were genuine potential customers for a decrease to the 10th figure. But this is not an easy task-as early as the
US session on Thursday, the cost moved from the low of the day to 1.1119 in anticipation of tomorrow’s release of data on the growth of the American economy. Nevertheless, numerous currency strategists refer to the dollar’s “April rally”with a certain hesitation. In their viewpoint, the dynamics of dollar sets is mainly due to the weakness of other currencies, and not the fortifying of the greenback. For instance, the yen effectively opposes itself to the dollar, “monetizing” the status of the defensive property. The Canadian dollar likewise halted its decline after the Bank of Canada’s dovish conference. The euro-dollar set remains in a losing scenario in this context. Firstly, the uncorrelation of the positions of the ECB and the Fed has actually been substantially improved lately. If the Fed has actually taken a strictly wait-and-see attitude, retaining the possibility of a rate hike at the beginning of next year (and even in December of this year), the European Central Bank already enables policy easing. Thus, ECB Vice President Luis de Guindos stated today that the regulator is prepared to resume the quantitative easing program (QE) in order to provoke a rise in inflation.
Let me remind you that the core customer rate index has been succumbing to the 2nd month in a row. The speed of deceleration is depressing – if in March, core inflation was at the level of 1%, then in April it was currently at the level of 0.8%, contrary to more optimistic expectations of professionals. And although Mario Draghi did not talk about the resumption of QE, following the April meeting of the ECB, he hinted rather transparently that the regulator would react to the inbound analytical reports. Today, Guindos has in fact clarified precisely how the reserve bank can react to a further decrease in inflation in the eurozone.
By and big, this statement has actually become today’s catalyst for the EUR/USD pair’s decrease. It sounded nearly concurrently with the publication of the ECB Economic Bulletin, the tone of which shows the sentiments of the members of the regulator at the last conference. The essence of this file comes down to the fact that the eurozone economy still needs “substantial accommodation steps”, while the risks of growth of the EU economy stay down. And how can we not keep in mind the insider information of American journalists? According to their information, some members of the ECB questioned the precision of the forecast models utilized by the regulator. In their viewpoint, this design provides a distorted image and does not fully take into account the modified macroeconomic indicators. The ECB minutes published today, along with Guindos’ declaration, validated the “dovish” attitude of the members of the European regulator.
Growing issue over the downturn in the eurozone’s financial development is putting the background pressure on the single currency. At the very same time, favorable statistical reports from the US only aggravate the position of the EUR/USD bulls. In particular, the March sales of new structures grew by 4.5%, exceeding the expectations of most experts. In terms of yearly rates, this outcome is the highest because November of the year before last. Today an essential release was also published: the volume of orders for long lasting goods. This indication exceeded even the most bold expectations. The overall volume of orders increased right away by 2.7% (with a growth projection of 0.7%), and excluding transportation – by 0.4% (with a projection of 0.2%). Such figures versus the background of beneficial business reporting once again supported the US currency.
Now the dollar will need to pass the primary “test”of this week. We are discussing the publication of data on the growth of the United States economy. Here it should be remembered that the US economy reached its “local” high in the second quarter of in 2015, when US GDP reached its peak– 4.2%. After that, the sign started to slowly decrease, reaching 2.2% in the fourth quarter of 2018. According to the projections of a lot of analysts, the United States economy will reveal a similar result in the very first quarter of this year. If the real figures do not coincide with the forecast, the dollar will considerably lose its positions throughout the marketplace, and the EUR/USD pair will not be an exception. It is likewise worth paying attention to the cost index of GDP– according to forecasts, it needs to substantially reduce (from 1.7% to 1.3%). This reality can put strong pressure on the dollar, even if GDP growth is at the projected level.
From a technical viewpoint, the bears need to enter the 10th figure in order to finally declare their intention to approach the essential resistance level of 1.1000. Bulls have a more difficult job: purchasers require to return the cost above 1.1240 (the average Bollinger Bands line on D1 accompanying the Tenkan-sen line). And although the bears of the pair have outright priority at the moment, Friday’s “test” can return the cost to the framework of the 12th figure.The material has been provided by InstaForex Business – www.instaforex.com
