"The bottoms don't want and the tops cannot live in the old way" - is the way to characterize the current situation of the euro-dollar pair. Bulls of the pair this week tested the 23rd figure, but could not consolidate it there, while bears repeatedly tried to reduce the price to the area of the 21st figure, but each time they suffered a failure.
This price "ping-pong" is explained by a contradictory fundamental background. Traders question all positive or negative information guides: whether they are rumors of the early completion of the European QE or the possible indecisiveness of the Fed's members regarding further prospects for monetary policy.
The kaleidoscope of events so far does not allow the pair to get out of a rather narrow price range - the dollar does not give up its positions without a fight. The decisive battle will be only at the end of January, when the first meetings of the ECB and the Fed will be held this year. In the meantime, traders live by rumors and speculation, forming a general mood in the market.
Yesterday's decline in the European currency was also due to rumors. So, according to Reuters, the European Central Bank will not exclude from the accompanying statement of the January meeting the phrase that the regulator will continue buy up assets before the inflation rate returns to the target level.
Such information goes against the minutes published last week in the December meeting of the ECB, where the regulator promised to tighten up its rhetoric "in early 2018". This fact served as a catalyst for the growth of the euro, and now traders can face the first disappointment when the declared plans are not implemented - at least not as quickly as expected.
However, this information reason yesterday, although it lowered the price of EURUSD in the area of the 21st figure, but could not TRIGGER a break in the trend. By the end of the American session, the pair had returned to the original levels and even updated the high of the day (1.2292).
Today, The EURUSD has been under pressure from political events already. Germany, which recently supported the European currency by a preliminary coalition agreement, turned the pair down. The fact is that the representatives of the youth wing of the Social Democratic Party of Germany (SPD) opposed the negotiations with the CDU/CSU of Chancellor Angela Merkel.
In other words, the coalition was again threatened, on the eve of the decisive congress of the Social Democrats, due to be held next Sunday. At the moment, political bargaining and negotiations are taking place: the younger generation of the SPD are trying to convince their "senior comrades" not to make an alliance with Merkel, and according to some information they have already managed to dissuade from this step several regional offices, in particular in Berlin and Saxony.
In the context of these events, it should be noted that the next trading week will open for the euro-dollar pair with an impressive gap: depending on the outcome of the SPD congress. The remaining intrigue will only increase the "value" of the positive decision, but at the same time it can provoke a deep correction of EURUSD, if the majority of social democrats reject the idea of a "major coalition". At the moment, the situation is balancing on the brink: most traders do not believe that a preliminary coalition agreement can be canceled because of the position of the youth wing, because the main positions have already been negotiated. This is reflected in the course EURUSD- after the fall to the bottom of the 22th figure, the pair is trying to return to the channel of the upward trend.
Some support for this process was provided by the indicator of European inflation. Today, the final evaluation of the CPI was published, which coincided with the preliminary values. This is a fairly neutral fundamental factor, which provided little support to eurusd only by the fact that it turned out to be at the forecast level.
In general, the situation on the pair remains "at the crossroads". Traders have reason to fear that ECB President Mario Draghi will find a way to cool the steam of the pair with his statement, expressing concern about the exchange value of the euro. Also, members of the regulator can reinterpret their position regarding the fate of QE and focus on inadequate inflation. In addition, the ECB can really leave unchanged the main storyline of the accompanying statement, without excluding therefrom key phrases of a "dovish" nature.
In other words, the European regulator has many ways to influence the dynamics of the EURUSD exchange rate. Further growth of the pair may complicate the process of inflationary growth in Europe. This fact is perfectly understood and Mario Draghi, and the market. That is why traders will expect verbal intervention from the head of the ECB, and Draghi, in turn, must surpass these expectations in order to really influence the situation.
Thus, traders of the euro-dollar pair are now reacting to many fundamental factors, but determining events will occur only next week, following the results of the January meeting of the ECB. For the time being, the pair is trading on a large account in flat, within the limits of 1.2190-1.23. On the technical side, all the "older" timeframes continue to give priority to the northern movement, with the first price target 1.2350 - this is the upper limit of the Kumo cloud on the monthly chart.
