Traders of the EUR/USD pair have been "circling" near the border of the 10th figure for the second day, but so far they do not dare to storm the resistance level of 1.1000. It is noteworthy that market participants even ignored today's report from the ZEW Institute, which reflected the pessimistic attitude of representatives of the European business environment. All this suggests that the focus of traders is geopolitics, which sets the tone for trading.
Cautious optimism, which is primarily associated with the negotiation process between Russia and Ukraine, allows EUR/USD bulls to impose their game. And although the pair's bulls are facing fierce resistance from bears (especially in the area of the key resistance level of 1.1000), the downward trend has clearly stalled. On the other hand, it is also impossible to talk about the development of the upward movement now: for this, EUR/USD bulls need not only to enter the area of the 10th figure, but also to gain a foothold there. This is quite a difficult task, since even when approaching the above resistance level, traders take profits and open short positions, preferring not to take risks once again. Actually, for this reason, the 1,1000 mark has not yet been stormed, although the price has been showing corrective growth for the second day in a row. "One step forward, two steps back" - this is how you can characterize the current situation.
In my opinion, the excessive caution of traders is fully justified. Firstly, the pair's corrective growth is due only to the weakening of the greenback: the European currency is still under pressure from numerous fundamental factors (the risk of stagflation, geopolitical uncertainty, the European Central Bank's dovish position, economic slowdown). While the dollar is losing its position due to a decrease in the level of anti-risk sentiment in the market. But, as we know, the news stream has been changing with kaleidoscopic speed in recent days: pessimism is replaced by cautious optimism and vice versa. The so-called "Ukrainian case" for traders is not closed at the moment – this is probably the only reliable fact. All other assumptions are probabilistic, including in the context of reaching agreements during negotiations between Russia and Ukraine.
That is why now you should not be "tempted" by long positions: longs for the EUR/USD pair are too risky now, even despite a certain decline in anti-risk sentiment. The situation may change at any moment, and not only in the context of events in Ukraine. Do not forget about China, which has recently toughened its rhetoric against Taiwan. Beijing recently stated that the Chinese army "will not tolerate separatist actions by Taiwan and interference by external forces in China's relations with the island state." The Taiwan issue has also had a ricochet effect on US-Chinese relations. Just today, the Chinese Foreign Ministry called on the United States to stop selling weapons to Taiwan. The events on the island itself also cause some concern – for example, yesterday the head of Taiwan Tsai Ing-wen visited the training center for reservists - she was dressed in a military uniform and with a bulletproof vest on her chest. Tsai said that in the light of Beijing's recent statements, the annual gathering of reserves will last two weeks instead of the previous five days (and now the emphasis in training will be on fire training).
In other words, the level of anti-risk sentiment can be fueled by the "Taiwan issue". In this context, the weakening of the dollar (which is traditionally used by traders as a protective asset) should be treated with extreme caution.
Also, do not forget that the Federal Reserve will announce the results of its next meeting tomorrow. The Fed is expected to raise the rate by 25 basis points (while a 50-point increase is also not excluded, but this scenario is unlikely). The very fact of a 25-point increase has already been taken into account in prices: the main attention of the market will be focused on the rhetoric of the accompanying statement and Fed Chairman Jerome Powell. According to most experts, the Fed will not worry about the risks of economic growth (at least it will not focus on this), focusing on the fight against inflation. If the central bank allows the option of a more aggressive pace of monetary policy tightening (voicing the option of a 50-point increase), the dollar will receive quite strong support. The issue of reducing the Fed's balance sheet also remains open. It is not known by what amount the Fed will reduce its balance sheet, which has now reached 8 trillion 900 billion dollars. If Powell clarifies this issue, the greenback will also receive some support.
Thus, the current increase in the price of EUR/USD should be viewed through the prism of forced corrective growth against the background of a weakening dollar. But the US currency still retains the potential for its further growth – including in a pair with the euro, which is now too vulnerable. All this suggests that it is advisable to use the current corrective pullback as an excuse to open short positions, with the first target of 1.0900. The main target is located 100 points lower – at 1.0800, which corresponds to the lower line of the Bollinger Bands indicator on the D1 timeframe.
