The euro-dollar pair is gradually sliding to the bottom of the 10th figure, amid the strengthening of the US currency throughout the market. The dollar index has been growing for several days in a row, with the clear intention of returning to 98 points. The general risk appetite, the restrained position of the Federal Reserve members, as well as the positive rumors surrounding the US-China dialogue puts pressure on the EUR/USD pair. Even encouraging statistics from Germany are not able to turn the tide, despite the impressive growth in industrial orders in this country.
Meanwhile, this release is important for the eurozone. The German manufacturing sector was a kind of an anchor for the German economy: other industries showed positive dynamics, but weak industrial production indicators offset this support. In other words, this sector was pulling the "locomotive of the European economy" to the bottom, having a negative impact not only on national indicators, but also pan-European ones.
Therefore, a significant (and unexpected) increase in production orders in Germany may signal a recovery in the German economy, especially in light of relatively good data on the growth of the eurozone GDP in the third quarter (0.2% QOQ with a forecast of 0.1 QOQ and 1.1% QOQ with a forecast of 1.1% QOQ). So, the German indicator in September (in monthly terms) jumped immediately by 1.3% with a modest growth forecast of only 0.1%. It is worth noting here that in July and August this indicator, which is a leading indicator of the dynamics of industrial production, was in the negative area.
However, the European currency paired with the dollar actually ignored this release. Firstly, due to the rally of the UScurrency, and secondly, due to a decrease in another German indicator - the indicator of production shipments. It decreased by 1.3% on a monthly basis, and according to some analysts, this may indicate a decrease in the level of industrial production in Germany, the corresponding report on which will be published today. If this indicator is in the negative zone, then yesterday's release will lose its relevance in the context of the impact on the euro. According to the consensus forecast, industrial production in Germany will decrease by 0.3%, although according to some experts, the decline will be more significant (-1.1%). But if, contrary to forecasts, the indicator demonstrates growth (at least minimal), the euro is unlikely to ignore this fact, especially against the background of a half-empty economic calendar.
But in general, the general hegemony of the US dollar does not allow the EUR/USD bulls to return to their previous positions: in order to claim the assault on the 12th figure again, buyers need to at least gain a foothold above the 1.1120 mark (the middle line of the Bollinger Bands, coinciding with the Tenkan- line sen on the daily chart). Whereas today the pair is trading at a different price niche (1,1120-1,1010), gradually decreasing to the lower boundary of the indicated band. As mentioned above, the dollar enjoys support from both the Fed members and signals from the external fundamental background.
It is necessary to recall here that following the results of the October meeting of the Fed, the regulator actually suspended the cycle of reducing the interest rate, but did not rule out further easing of monetary policy at the beginning of next year. In turn, Jerome powell ruled out an increase in rates in the foreseeable future. He said that the regulator would not even think about it until a steady and sufficiently significant increase in inflation was recorded. Earlier, at the September meeting, when the Fed also cut interest rates by 25 basis points, a split occurred among Fed members. The dot plot of the Fed members' expectations indicated that seven Fed officials spoke about the feasibility of further steps to mitigate monetary policy, while five of their colleagues advocated maintaining a wait-and-see attitude. Another five members of the Fed did not rule out an increase in rates by 25 points.
As for the external fundamental background, there is cautious optimism regarding the prospects of signing the first stage of the trade agreement between the United States and China. According to one rumor, Trump's meeting with Xi Jinping may take place in the United States in November. According to other information, the deal is likely to be concluded later - in December. US and Chinese leaders may meet in London after the NATO summit. According to information from third sources, the deal is completely in question, since the White House is not ready to satisfy Beijing's ultimatum (cancellation of September duties and refusal of December). Nevertheless, the news flow is mostly positive, especially amid Trump's political problems in the United States. Therefore, the dollar enjoys background support from this side as well.
Thus, the EUR/USD pair retains the potential to decline to the lower boundary of the price range 1.1120-1.11010 with the possible testing of the support level of 1.0980. But a more significant recession is unlikely so far - at least until the United States and China sign a deal or officially signal such intentions.
