The euro-dollar pair continues to trade in a narrow price range, its limits are marked at 1.0550-1.0660. This week, traders gravitate towards the upper limits of this range but formally the pair is still trading within the area. Pre-New Year's stagnation is expressed in low volatility so the price crosses several dozens of points a day and movements are not unidirectional. For example, on Tuesday, the pair initially marked the daily high at 1.0671 but then it reversed and updated the low at 1.0613. At the same time the trading day ended at 1.0640. In fact, the pair was stuck, reacting to the lack of information.
Macro data were published in the US. Moving forward, all the data came out in the green zone, although they were minor reports. Traders actually ignored the US data. Markets have shown an increased risk appetite (due to news from China), which put the safe-haven dollar out of business. Nevertheless, we shouldn't completely disregard the macro data: we will be reminded of it at the beginning of next year, ahead of the first Federal Reserve meeting in 2023.
Let's start with the most important report, according to which the U.S. international trade deficit was $83.3 billion in November, down $15.5 billion from $98.8 billion in October.
Exports of goods for November were nearly $169 billion (down $5.3 billion from October, mainly due to lower shipments in the manufacturing sector) and imports were $252.2 billion (down $20.8 billion from October, mainly due to lower purchases of consumer goods). Most experts predicted that the U.S. international trade deficit would fall to $97 billion in November.
Another U.S. indicator, the housing price index, also came out in the green. Although, there were no changes: residential real estate prices in the U.S. remained unchanged on a monthly basis in October. However, experts were prepared for a different scenario: according to most analysts the index should have decreased by 0.9%.
Also another housing market indicator was released: the S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index, which measures the value of residential real estate prices in 20 major U.S. metropolitan areas. Typically, this index has a limited impact on the market, as it is published after the main data in this area. However, according to experts, the methodology of its calculation is considered one of the best. In November, it rose to 8.6% (with a more modest growth forecast of 7.8%).
However, traders ignored this report as well. The latest macro data were overshadowed by this week's main news - China will scrap quarantine for foreign travelers. This is high-profile news since Beijing has been implementing a "zero-Covid" policy for almost three years, which has had a negative impact on both the Chinese economy and the world economy. Therefore, the first real move to dismantle this policy has provoked a bombshell effect, especially in the current environment where the number of people infected with the coronavirus is rapidly growing in China.
Overall, China does not deny that the number of COVID cases and deaths remains high. But the scale of the COVID outbreak is anyone's guess. For example, according to several news agencies (Bloomberg, AFP, Reuters), the outbreak is unprecedented: more than 250 million people were infected in the first three weeks of December alone, and hospital intensive care units are filled to capacity - allegedly even general wards in some cities were converted into emergency rooms to cope with the large number of cases.
While the PRC authorities remain silent and do not comment on the current situation. Representatives of the Ministry of Health announced that they would publish statistics on the coronavirus only once a month.
However, in the context of the currency market, it is enough that the PRC is taking concrete steps to dismantle the zero-Covid policy. The fact that this is happening amid an unprecedented outbreak of the coronavirus does not worry traders too much. That is why, despite dreadful media reports, risk appetite in the markets continues to grow. Market participants are guided primarily by official reports from Beijing (regarding the easing of quarantine restrictions), while ignoring unofficial medical reports.
Thus, the current fundamental background allows bulls to stay near the upper limit of the 1.0550-1.0660 range (first of all due to China), however the current news flow doesn't allow the bulls to make a powerful breakthrough to the area of the 7th figure. Therefore, in my opinion, the pair will continue to trade within that range, attracting bears around 1.0660-1.0670.
