The euro-dollar pair showed quite strong volatility on Friday, taking into account the half-empty economic calendar. The price passed almost 100 points in a day, reacting to a contradictory fundamental background. The political crisis in Spain, weak inflation data from China, as well as extremely "dovish" comments from ECB member Benoit Coeure pulled down the pair to an annual low of 1.1235, but positive news from the front of the US-China talks returned the price to the 13th figure. In addition, traders took profits on the eve of a long weekend, since on Monday, a national holiday is celebrated in the United States – President's Day. US trading platforms will be closed, and this fact will have a corresponding impact on the dynamics of trading.
Monday's economic calendar is also nearly empty. The report of the German Bundesbank and data on the real estate market in Britain are unlikely to have any impact on the behavior of currency pairs. Therefore, traders will focus on the main events of the previous week, and especially – Friday. As I mentioned above, downward pressure on the EUR/USD was exerted by the comments of ECB Executive Board member Benoit Coeure. Although traders have become accustomed to the soft position of the European regulator, his statements were too "dovish" in nature. First, he announced that the central bank will soon discuss a new round of TLTRO.
The previous TLTRO program ends in the middle of next year, but the banking sector will already need liquidity this year, thus, many experts estimate that the long-term financing program will be resumed this year. Members of the central bank discussed this topic in December (although to no avail), but they avoided this issue in January, thereby providing indirect support to the European currency. But judging by the rhetoric of Coeure, the ECB will announce a new round of TLTRO in March.
In addition, the representative of the European regulator was very critical of the idea of raising interest rates this year. He asked the question - why tighten the parameters of monetary policy, if you then have to soften it? He also acknowledged that the eurozone economy is slowing down at a faster pace - just like inflationary processes. In other words, Coeure was added to the list of representatives of the ECB who spoke in favor of maintaining accommodation policy.
Almost simultaneously with the speech of Benoit Coeure, important political events took place in Spain, which also added pressure on the euro. We are talking about early elections to the Spanish Parliament, scheduled for the end of April. The market is frankly tired of a series of incessant protests, conflicts and other political turmoil. "Yellow vests" continue to protest in France, rallies of local trade unions are held in Italy, and now it has become restless in Spain. Although the results of early elections may support the euro (instead of Socialists, Pro-European political forces, in particular, "Citizens"), the EUR/USD pair reacted negatively to the resignation of the Spanish government.
Chinese macroeconomic data also helped the pair's bears to pull the price to annual lows. Inflation in China continues to slow down, with the pace of slowdown ahead of forecasts of most analysts. Thus, in January, the consumer price index fell to 1.7%, although experts expected to see this figure at 1.9% - that is, at the level of December. But the real figures confirmed the negative trend: inflation has been decreasing every month since October last year, when the indicator corresponded to the level of 2.5%.
The decline in the Chinese CPI served as another reminder that the economy of China is slowing down, and this fate is also destined for the global economy - with all the ensuing consequences. In such conditions, one should not count on tightening monetary policy by the central banks of the leading countries of the world - moreover, some regulators (in particular, the RBA and the RBNZ) may lower interest rates in response to an external fundamental background.
Given such a "bunch" of negative fundamental factors, the question arises: why did the EUR/USD pair end the trading week on a positive note, compensating almost all the points it lost? The fact is that traders once again had hopes for a "truce" between the United States and China. Over the past two weeks, the market received quite contradictory information, but on Friday the pendulum swung to the side of a deal. According to the American press, Beijing and Washington will sign an agreement, which will more likely resemble a protocol of intent. But by doing so, the parties will create a basis, which will form the basis of a future trade transaction.
This information was indirectly confirmed by Donald Trump, who on Friday announced that America and China had become as close as possible to the conclusion of a real trade agreement. This week in Washington will be held the next (according to some sources - the final) round of trade negotiations, which will be followed by a personal meeting between Donald Trump and Xi Jinping. The president himself is optimistic: "I would be honored to abolish tariffs if we make a trade deal with China," he told American journalists.
Such prospects offset all the negatives on Friday, after which the EUR/USD pair rose to the boundaries of the 13th figure. Today, corrective growth might continue, especially if the rumors around a possible "truce" will increase. In this case, the price may rise to the first resistance level - the mark of 1.1340 (Tenkan-sen line on the daily chart) or to the stronger level 1.1370 (the Bollinger Bands middle line on the same timeframe).
