The euro-dollar pair is at a crossroads. On the one hand, the downward trend is still in force – there are no prerequisites for its reversal at the moment. On the other hand, last week the bulls of EUR /USD organized a fairly large-scale correction, rising by almost 150 points. On the last day of the trading week, the bulls nevertheless loosened their grip, after which the bears again seized the initiative. However, they did not manage to consolidate their success – they did not return the pair to the area of the 9th figure in order to clearly indicate the priority of short positions. As a result, a logical question arose: has the correction been completed or will EUR/USD bulls still make another attempt to attack?
The question is not an easy one. The difficulty lies in the fact that the US dollar reacts sharply to changes in market sentiment. For example, the main engine of corrective growth last week was geopolitics, which allowed the pair's bulls to organize a fairly powerful march. All the attention of traders was focused on the negotiations between Russia and Ukraine. And if earlier they were held offline (i.e. the results of the next round of negotiations were announced immediately after its completion), now the dialogue is conducted via video link, almost daily. Therefore, market participants are forced to focus on situational comments from representatives of delegations, who, "in portions" and very sparingly share information. This is quite understandable, given the fact that the negotiations have not yet been completed.
But this does not make it any easier for EUR/USD traders: they are forced to catch the general mood and build a chain of possible prospects for the development of the negotiation process. It is these, at first glance, elusive notes that determine the degree of "anxiety" in the foreign exchange market. So, over the past week, optimistic messages regarding the achievement of a possible compromise began to prevail in the information field. The negotiators veiled, but still unambiguously made it clear that on some points of the future agreement the positions of the parties "closed as close as possible." These comments by officials were backed up by insider information from a number of media outlets who quoted unnamed officials close to the negotiation process.
The correction of the EUR/USD pair was based on this optimism. Demand for a safe dollar has declined, while interest in risky assets has returned. The US dollar index for the week fell from 99.02 to 97.97 (the local low that was reached on Thursday).
However, the market cannot "live with expectations" for a long time: a result (at least intermediate) is needed, which is not available at the moment. Moreover, one of the representatives of the Ukrainian delegation on Friday said that negotiations could go on "for several more weeks." Such a dissonance relative to the initial optimistic mood allowed dollar bulls to show character, due to the strengthening of anti-risk sentiment.
At the moment, it is known that the next round of negotiations will take place on March 21, that is, on Monday. If the representatives of the parties do not announce any messages of an optimistic nature following the results of this round, the safe dollar will begin to gain momentum again. Moreover, the demand for the US currency will increase even if the parties do not comment on the course of negotiations at all, and only confirm the fact of the continuation of the negotiation process.
In general, now we can only say with confidence that geopolitics will become the main engine for the EUR/USD pair this week. Since the economic calendar of the penultimate week of March is almost empty.
For example, on Monday, only the German producer price index will be published during the European session. The monthly report of the German Bundesbank will also be published, but it can affect the dynamics of the pair only if the rhetoric of the members of the German central bank is very different from the previous rhetoric of the ECB members. On Tuesday, data will be published in the US real estate market – the volume of home sales in the primary market. This indicator should recover slightly after the decline in January. This release also affects the EUR/USD pair only with significant fluctuations. Well, on Thursday, the pair's traders should pay attention to the ECB Economic Bulletin, which replaced the Monthly Bulletin. This document is published by the European Central Bank two weeks after the meeting - it contains statistics that the Governing Council considered, and provides a detailed analysis of the current and future situation.
As we can see, the macroeconomic reports for the coming week are of a secondary nature. Therefore, all traders' attention will be focused on the geopolitical factors that will "move" the EUR/USD pair. Given the growing uncertainty in this area, it can be assumed that the dollar will gradually but surely strengthen its position throughout the market – including in pairs with the euro. And although geopolitical factors are a priori unreliable (due to their variability and instability), at the moment there are no obvious prerequisites for reducing the level of anti-risk sentiment. Consequently, any upward spikes in the EUR/USD pair can still be used as an excuse to open short positions. The first target is the intermediate resistance level of 1.0990 (the Tenkan-sen line on the daily chart), and the main target is the psychologically important mark of 1.0900.
