The bearish sentiment on the euro-dollar pair today unexpectedly gave way to the bulls after an unsuccessful attempt to storm the 10th figure. Apparently, buyers have not lost hope for a radical change in the situation.
The market actually ignored the minutes of the last Fed meeting. Traders did not see anything new there, and many voiced theses were outdated. The members of the regulator reiterated that they were ready to continue to take a patient position regarding the prospects for interest rates, however, they did not say a word about a possible easing of monetary policy. Fed officials expectedly expressed concern about the weak growth of inflation indicators, thereby offsetting Jerome Powell's optimism, who at the final press conference described the slowdown of inflation as a "temporary phenomenon". The majority of Fed members in this part do not agree with their "boss" - in their opinion, this is a stable trend.
But this fact has not weakened the position of the US currency. First, inflation data was published after this meeting and it somewhat eased concerns regarding this. Inflation, though not showing its rise, but at the same time slowed the decline. Secondly, the overwhelming majority of the members of the regulator spoke and are in favor of keeping the interest rate at the current level. Moreover, according to the Fed, the rate should remain at the current level even with improved economic conditions. This position was confirmed by Jerome Powell himself during his speech at the Atlanta Federal Reserve Bank. Thirdly, the published Fed minutes does not reflect the current situation in the financial world, since the May meeting was held even before relations between Beijing and Washington once again deteriorated.
The minutes of the last meeting of the ECB, published today, also did not support the European currency. The regulator acknowledged that recently published macroeconomic data turned out to be weaker than forecasts, whereas inflation stays "well below the target level". In view of these circumstances, the members of the ECB are no longer so sure that the eurozone economy will recover in the second half of this year, although the key indicators (for the time being) correspond to the baseline scenario. It was also stated in the minutes that the conditions of the TLTRO program will be determined "at one of the upcoming meetings" (according to a number of analysts, in September). In addition, the regulator drew attention to the time that since the end of last year it records a significant decrease in lending volumes. According to members of the central bank, this corresponds to a slowdown in economic growth. In general, the minutes of the May meeting reflected the cautious position of the European regulator's members - but the traders did not see anything new in it. Almost all the theses mentioned there have already been voiced by either Draghi or other members of the ECB.
Macroeconomic releases also play a minor role, although today's reports from the IFO strengthened the downward dynamics of EUR/USD, as they turned out to be worse than expected (as did the composite PMI index). But this factor served only as an additional touch to the overall fundamental picture, which so far does not add up in favor of the single currency.
In other words, the single currency does not have any arguments for its own growth, so in the EUR/USD pair it has to follow the dollar. Today, the greenback attempted a downward assault, impulsively dropping by almost 50 points. Although the pair could not enter the area of the 10th figure, the price has updated its multi-year (from 2017) low. The blitzkrieg did not succeed: just a few minutes after the fall, the pair started to redeem itself, after which the price returned to the level of today's opening, and then updated its high. It should be noted that such a price spurt was not due to any particular fundamental factor. Traders argue about what served as a catalyst for such a sharp price drop. According to some experts, the situation with Brexit is weighing on the pair, given the increasing rumors about the resignation of May and the subsequent coming to power of Johnson.
Other analysts blame China. China's President Xi Jinping recently hinted quite clearly that he could use China's dominance in the world market for rare-earth metals as a weapon in the trade war with the United States. Experts believe that the embargo on rare-earth metals from China is one of the most powerful trumps of the Chinese in the trade conflict with America. According to them, these metals are contained in almost every telephone, car, plane and so on. The lack of a steady supply of rare earth metals will inevitably disrupt the entire supply chain of American technology companies, including in the defense industry. Although the United States have their own rare earth reserves, Americans will need time to cover the necessary demand. Whether China will use such a powerful trump card or not is an open question. So far, Xi Jinping only hinted at this step: in the midst of the situation with Huawei, he unexpectedly visited the enterprise for the production of rare earth metals. A fairly transparent hint in the world of big politics.
By and large, it does not matter whether Brexit was to blame for the dollar's temporary strengthening or China. The main conclusion of today's price fluctuations is that the EUR/USD bears are not capable of taking the 10th figure by storm. With a decline to the critical levels, the pair are bought back and the prices are driven up, despite the ambiguous fundamental background. The support level of 1.1120 (the bottom line of the Bollinger Bands indicator on the daily chart) is so far a reliable price outpost. If today, bulls of the pair conduct a counterattack and overcome 1.1185 (the middle line of the Bollinger Bands), they can count on further conquering the 12th figure. Otherwise, the bears will eventually make a similar attempt at a downward assault.
