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The EUR/USD pair is trading in a flat in view of conflicting primary signals. The growth of the US dollar discontinued and shows indecision after a strong growth last week. In turn, the Euro withstood a "verbal blow" from the ECB's head, Christine Lagarde, whose rhetoric was not so "dovish".
On the other hand, there was almost no macroeconomic data for the pair yesterday – only the Dallas Federal Reserve's manufacturing activity index (which rose to 13.6 points in September) gained some interest, but it could not affect the overall situation due to its secondary importance. As a result, traders of this classic pair gave preference to the Euro yesterday, as Lagarde's rhetoric was not as harsh as many experts expected. Due to this fundamental factor, the pair left the lows reached last week, after which it moved away in the middle of the 16th figure.
In my opinion, EUR/USD traders found themselves in a dead end, at least if we talk about the medium-term prospects of the pair. The dollar has lost its drive, which showed itself for almost a week and a half – against the background of the growth of anti-risk sentiment in the market and of the appearance of signs of political "negotiability" of Republicans and Democrats. However, the situation this week has somewhat changed. And although the problem of the spread of COVID-19 is still relevant, recent events in the United States forced investors not to rush to buy the USD. The fact is that the widely announced negotiations by the US Treasury Secretary to agree on a bipartisan bill to provide assistance to the US economy have not been implemented. Democrats "bend their line": just yesterday, they introduced another bill in the House of Representatives, which provides the allocation of $ 2 trillion 200 billion as additional incentives. This is a deliberately "non-passable" document that will be adopted only in the Lower House of Congress, since it can be confidently said that the Upper House will not pass this bill given the repeatedly voiced position of Republicans (senators), representatives of the White House and personally, Trump. The Democrats' bill will repeat the fate of May's $ 3 trillion bill, which is also stuck in the Senate's review stage.
It is clear that this legislative initiative of the Democrats is part of a big political game. They use the probable refusal of the Republicans to their advantage, accusing their opponents of saving on strategically important issues. But in the context of the currency market, this situation looks somewhat different. It is not hard to conclude that we will not see an agreed bipartisan incentive bill in the near future. After all, it is obvious that the Democrats will not simultaneously propose a $2 trillion bill and discuss the proposals of the Republicans, which in the opinion of the Democratic Party, offer a meager 300 billion.
In other words, the optimism of the dollar bulls was replaced by disappointment. This fundamental background has affected the price dynamics of almost all dollar pairs. The current situation helped EUR/USD bulls move away from last week's lows and partially regain their lost positions.
Meanwhile, Christine Lagarde, whose rhetoric turned out to be not as "dovish" as many expected, also contributed to the pair's recovery. Yesterday, she spoke to members of the European Parliament's Committee on Economic and Monetary Affairs. She discussed the excessive high rate of the euro again, but at the same time, noted that "the exchange rate is not the goal of the ECB." The rest of her rhetoric was familiar – basically, she repeated the things she already said at the September meeting of the ECB. Traders clearly expected a more "dovish" mood, so following the results of her speech, the EUR/USD pair updated the daily high.
In addition, traders interpreted the latest rumors regarding a split in the ECB camp in favor of the Euro. So, according to Reuters, representatives of the "hawkish wing" of the Central Bank say that the regulator downplays the significance of some positive signals, such as a number of economic indicators that turned out to be better than expected in the summer. They insist that the state of emergency be lifted as soon as the pandemic recedes, which is initially played by Germans and representatives of Northern Europe. On the contrary, representatives of the "dovish wing" (mainly Southerners, with the exception of the French), insist that the risks have only increased recently amid the second wave of the COVID-19 and the euro's strengthening. All these discussions revolve around the PEPP quantitative easing program. But yesterday, Christine Lagarde said that there was no significant negative side effect of PEPP, which the market interpreted as favoring the Eurocurrency.
Therefore, there are currently clear preconditions for the correctional growth of the EUR/USD pair. However, this growth may be limited, as many representatives of the ECB are against the strengthening of the euro. The chief economist of the European Central Bank and the heads of the Central Banks of Spain and Italy spoke on this matter.
From the point of view of technical analysis, the EUR/USD pair will put itself in danger again as soon as it crosses a certain line (in my opinion, it is in the area of the 18th figure). Considering this factor, a large-scale growth of the pair looks unlikely.
To sum it up, we can conclude that long positions in the medium term are relevant to the first resistance level of 1.1780 (the upper limit of the Kumo cloud, coinciding with the middle line of the Bollinger Bands indicator on the daily chart). The support level is located at 1.1560 (the lower limit of the above cloud), where you can place a stop loss. If the price breaks through this price target, then the relevance of the upward scenario will drop to zero, although nothing can be said yet.
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