14.09.201800:39 Forex Analysis & Reviews: EUR/USD: 1-0 in favor of the euro

The key trading day of the week ends in favor of the European currency. The bulls of the EUR/USD pair did not miss the opportunity to seize the initiative and test the 17th figure. And although I doubt that this attempt will be successful, the "claim for victory" turned out to be very serious.

In general, the euro-dollar pair is gradually returning to the price area in which it lasted from May to August this year (1.1650-1.1800). At least the dynamics of the price on the weekly chart eloquently testifies to this: since mid-August, almost every candle on W1 was closed by growth.

If we talk directly about today, the European currency has passed a kind of "test" by the regulator, while the dollar did not find support among the key inflation indicators. The result of the day is natural: the greenback sank throughout the market, and the euro takes the cream off the situation. Now the main question is how long the euphoria of "euro-bulls" will last and how likely is the downward price rollback to the initial positions.

The main merit of Mario Draghi, in my opinion, is that he did not focus his attention on the negative aspects of the overall fundamental picture on Thursday. Although there were plenty of reasons for this: among them were global trade conflicts, and the slowdown in industrial production in Europe, and the intentions of the Italian government, and the notorious Brexit. And domestic macroeconomic data could be criticized, especially with regard to the growth of wages and industrial indices. Instead, the head of the ECB said that at the moment, the uncertainty regarding core inflation has largely decreased. He also "justified" the reduced external demand by the growth of the European currency, and also expressed confidence that nominal wages will show a positive trend. In general, his rhetoric was confident and to some extent "hawkish" in nature. Although, he traditionally recalled that the ECB can adjust its actions depending on the current situation, this remark did not affect the overall impression of the September meeting.

The press conference of Mario Draghi began simultaneously with the release of data on the growth of US inflation. Here, dollar bulls were disappointed: the consumer price index came out in the "red zone" in both monthly and annual terms. The indicator did not reach the forecast values (the release came out at 0.2% and 2.7%, respectively). Core CPI (consumer price index excluding food and energy prices) also turned out to be slightly worse than expected, only adding to the disappointing effect.

After this publication, the dollar index fell from almost 95 to 94.44 points, reflecting the general pessimism. Of course, the published figures will certainly not affect the determination of the Federal Reserve members to raise the rate in September, but at the same time now the "dovish wing" of the Fed can more actively express its concern about the dynamics of inflation. Hypothetically, this may affect the probability of a rate hike in December, but at the moment there are no such signals on the market.

In general, after such impulsive price jumps it is risky to open long positions. Figuratively speaking, Mario Draghi "did not spoil" the fundamental background of the euro, but did not show excessive determination. Moreover, the regulator indicated in a separate line that the current interest rates will be in effect at least until the end of next summer. The issue of extending QE could also very quickly return to the agenda if inflation (and economic) growth slows down. In other words, the European currency won the dollar from the battle, but not the battle: the results of the September meeting of the ECB against the backdrop of weak US inflation only transferred the EUR/USD pair to a new price niche, but no more.

Also, we should not forget that the dollar is now subject to the influence of the external fundamental background. For example, on Wednesday the press reported that the White House took the initiative and invited the Chinese to hold another round of talks. After that, the dollar weakened slightly throughout the market. On Thursday, Donald Trump, using his usual method of communication – Twitter – told reporters that they misinterpreted the information.

He said that Washington is not in a hurry to "seek peace" with the Chinese, and in general, Beijing is more interested in a truce, as the Chinese markets show negative dynamics. Trump's response can not be called a rebuttal (since the negotiation process itself, apparently, is really going on), but the market reacted to this speech in its own way, increasing demand for the dollar. Only weak figures of American inflation could stop the gradual recovery of the greenback.

Thus, today's day speaks volumes, but it's not worth making an unambiguous bet on the growth of the euro. The European currency has received a certain margin of safety for a gradual recovery, but the external fundamental background (global trade conflicts and Brexit) can return the dollar's strength for recovery. The technical side of the issue says the same: on the daily chart, the pair broke through important resistance levels (the average Bollinger Bands line, Tenkan-sen line and the lower boundary of the Kumo cloud) and tested the upper boundary of the Kumo cloud (1.1680). On this the upward impulse faded away, and the price slightly rolled back.

At the same time, it is important for the bulls of the pair to overcome this target, as it will allow, firstly, to enter the 17th figure, and secondly-to test a strong resistance level of 1.1735 (the upper line of the Bollinger Bands on the daily chart). If in the next trading days the bulls can not break the level of 1.1680, then we are waiting for a rollback to the base of the 16th figure.