The euro-dollar pair is struggling to stay within the 10th figure, but, apparently, the bulls will have to give way to the bears, at least in the context of the ninth figure. It is too early to speak about a more significant decline - the fundamental picture for EUR/USD is too controversial. But today's round may end in favor of the US currency, which is rising in price throughout the market.
The dollar index shot up after news from China. Let me remind you that after the conclusion of the US-China trade negotiations, Beijing remained silent for several days: official sources and state media did not comment on the situation, limiting itself to short notifications. The outcome of the fateful negotiations could be judged by the reports of the American side, in particular Donald Trump. But the financial world has long been one of its impulsive messages with a certain amount of skepticism. Against the background of China's oppressive silence and negative rumors around the negotiation process, pressure on the dollar was growing.
Traders came to the conclusion that the parties only once again "shook hands", but could not get off the ground on really important and most difficult issues. On the horizon of discussions, the issue of reducing the Fed interest rate again appeared, especially after a series of negative macroeconomic reports (ISM production index, American inflation, Nonfarm). Federal Reserve Chairman Jerome Powell only aggravated the situation last week by saying that "he doesn't exclude various scenarios", adding that the regulator starts the printing press. Although he refused to acknowledge the fact that the stimulus program was resuming, the market interpreted the Fed's actions in this way.
In other words, the dollar needed a reason to recover, and today it received it: the Chinese Foreign Ministry commented on the situation for the first time since the negotiations ended, and these comments were in favor of the US currency. First, Geng Shuang, the spokesman for the ministry, said that the Chinese and US authorities were able to agree on key issues of the trade and economic agreement. Secondly, he confirmed the veracity of US statements regarding the outcome of the negotiations. Earlier, Trump said that China will significantly increase the volume of purchases of American agricultural products - by $50 billion. The representative of Beijing confirmed this fact, while clarifying that Chinese enterprises, in accordance with domestic demand, will purchase agricultural products in the United States on their own initiative.
Previously, contrary information was circulating in the market that the Chinese did not agree to artificially increase demand for US products, refusing to buy similar goods from Brazil. But today, Geng Shuang not only denied these rumors, but also announced the planned purchases of goods of the agricultural sector, including 700 thousand tons of pork. It is worth recalling that in the first half of this year, China sharply reduced soybean imports - primarily from the United States. And after the summer escalation of the trade war, the state-owned companies of China "by order from above" completely stopped purchasing the products of US farms.
In addition to the fact that the Chinese representative officially confirmed the "authenticity" of the US comments, he hinted at the parties 'intentions to conclude a historic deal in the foreseeable future. According to the diplomat, this deal will be "extremely important" and will have a positive effect not only on China and the United States, but on the entire world economy.
After these words, the dollar index went up on a wave of optimism regarding the conclusion of the deal and, accordingly, the future prospects of the monetary policy of the Fed. It is noteworthy that today the representative of the Federal Reserve James Bullard (who has the right to vote this year) made an unexpected statement. As a consistent dove, he allowed a rate hike next year, "if economic indicators improve." It is worth recalling that according to the minutes of the last meeting of the Fed, five members of the regulator advocated raising the rate by 25 basis points in 2020 - but at the same time it was difficult to assume that Bullard is a supporter of this scenario.
The above fundamental factors created the basis for the restoration of the US currency throughout the market, to one degree or another. Moreover, the European currency today can not resist the onslaught of the greenback due to its own problems. So, according to reports from the ZEW Institute, the assessment of the current situation by German investors and businessmen dropped to -25.3 points. The indicator not only came out worse than forecasts, but also dropped to multi-year lows - the last time it was at this level nine years ago, in the spring of 2010. The situation around Brexit is also ambiguous: the market is awash with conflicting rumors from politicians and officials of various ranks. The pound fluctuates in a wide intraday range, while the euro only indirectly reacts to what is happening. But overall, the uncertainty on this issue also exerts indirect pressure on the single currency.
Thus, the euro-dollar pair is now under certain pressure, mainly due to the growth of the dollar index (which responded to the comments of the Chinese Foreign Ministry). The prevailing fundamental background allows the bears to test the closest support level, which is located at 1.0970 (the middle line of the Bollinger Bands indicator on the daily chart, which coincides with the Tenkan-sen line). If sellers gain a foothold on this target, then it is likely to go down to the next support level of 1.0900 (the lower line of Bollinger Bands at D1), followed by testing the annual (multi-year low) at 1.0880. However, it's too early to talk about pulling down the price at such a level, especially since the euro can get support from Brexit if negotiations between London and Brussels end with at least a prolongation of the negotiation process, not to mention a deal.
