The euro-dollar pair was under pressure during the first day of the trading week, updating a month and a half price low. However, traders kept the pair within the 10th figure on Monday, despite the fact that the trading session closed at 1.1004 yesterday. The bulls of the pair were actually saved by Federal Reserve Chairman Jerome Powell, whose speech was during the Asian session. The Fed chief delivered his speech in Providence (Rhode Island): he dwelt on the prospects for monetary policy in sufficient detail. His rhetoric was mostly dovish in nature, so the dollar index suspended its growth, and the euro-dollar pair, accordingly, suspended its decline, remaining in the range of 1.0980-1.1090. This fact allowed the EUR/USD bulls to regain their positions, although the upward scenario is unlikely, given the renewed optimism about the prospects for a trade deal between the US and China (the so-called "first phase").
This morning it became known that the leaders of the negotiating groups, Liu He and Stephen Mnuchin, had a telephone conversation, during which they "discussed the solution of the main issues of common interest." On the one hand, such a dry wording does not mean anything - neither China nor the United States provided any details of the conversation. But on the other hand, the general context of the accompanying comments encouraged investors, especially amid the recently adopted "Hong Kong bills."
Many experts expected Beijing to slam the door, and suspend the negotiation process for at least some time. Contrary to these expectations, China did not break off contacts with the American negotiating group - moreover, according to the announcement of the Ministry of Commerce of the PRC released today, the parties "reached a consensus on how to solve the main problems." The Chinese also said that the leaders of the negotiating groups agreed to maintain contacts "to resolve other issues regarding the conclusion of the first stage of the agreement." We can only guess about the details of this telephone conversation. The American side only confirmed the very fact of this dialogue, and the journalists have not yet obtained the corresponding insider. Therefore, the expected market reaction to this event will be limited.
I recall that in early October, Trump expressed his readiness to sign the first phase of the deal. The parties even discussed the place and time of a possible meeting of the leaders of the United States and China. However, the negotiations came to a standstill: the Chinese did not want to commit themselves to the annual purchase of US agricultural products worth $50 billion, while Trump made it clear that he was not ready to satisfy Beijing's ultimatum regarding the abolition of September duties and the rejection of December duties. It is not yet clear whether the parties were able to overcome these barriers.
It is known that Liu He invited the American delegation to hold a new round of consultations in China. According to the American press, he made a corresponding proposal last week. Representatives of Washington, in turn, said they were ready for such a meeting - but only after Beijing made it clear that it was ready to commit itself to the protection of intellectual property rights, the forced transfer of technology and the purchase of American agricultural products. Just a few days after that, Chinese authorities announced that they would tighten the punishment for violating intellectual property rights. The new provisions provide for the introduction of more stringent measures, both disciplinary and criminal, for the release of counterfeit products and other facts of violation of intellectual property rights. Moreover, the threshold of criminal liability for the theft of intellectual property will be significantly reduced. It is worth recognizing that this is a significant step for the United States towards one of the most controversial issues of trade negotiations. Today's telephone conversation only added to the general picture - even without revealing the details of the dialogue.
Thus, the dollar receives support from the external fundamental background. And if it were not for the rhetoric of Jerome Powell, the EUR/USD pair would probably have already fixed itself in the framework of the ninth figure. The Fed chief is quite pessimistic about the current situation in the economy. He was worried about weak inflation and the latest performance in the manufacturing sector. He also turned to the rather controversial Nonfarm- according to him, the slowdown in the monthly increase in the number of employees indicates that the economic growth impulse is "somewhat weaker than previously expected." Risks have also increased in relation to the export sector - as Powell noted, the slowdown in foreign economies negatively affects exports, thereby increasing the risk of a "wider spread of weakening" in other areas. In conclusion, the Fed chief said that the regulator will make decisions "in accordance with the current situation." This pessimism on the part of Powell somewhat surprised, especially against the background of his earlier comments, which were restrained.
This fact allowed EUR/USD traders to stay in the area of the 10th figure, although the focus of the market is now clearly shifted to the external fundamental background. If today, the American side is optimistic about the prospects for further US-Chinese dialogue then the dollar will receive additional support, and the EUR/USD pair will accordingly come under pressure: the bears will test the lower boundary of the price range of 1.0980-1.1090 for strength. If the support level persists, sellers will open their way to the next support, which is located at 1.0920 (the lower line of the Bollinger Bands indicator on the weekly chart).
