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After a slight price correction, the euro-dollar pair resumed its downward movement today, heading towards the bottom of the 10th figure. However, bears also show uncertainty in their abilities, because for the development of the downward trend they need to at least overcome the target of 1.0970 (the lower boundary of the Kumo cloud on the daily chart). In the meantime, we can only talk about the EUR/USD flat, which is due to a contradictory fundamental background.
The US dollar received tangible support from the Federal Reserve last week. Most of the speakers of the Fedmade it clear that they are satisfied with the current state of affairs, or rather, the current level of interest rates. Jerome Powell voiced a similar position following the results of the last meeting of the central bank. But he, in fact, left room for maneuver - according to him, the regulator can return to this issue if external risks negatively affect the dynamics of economic growth. In other words, the Fed is ready to continue to lower the interest rate if the trade war continues, and negotiations, respectively, once again fail.
Most likely, Powell will repeat the theses already voiced in Congress tomorrow. At the same time, it can be assumed that the tone of his rhetoric will depend on the results of today's speech by US President Donald Trump at the Economic Club in New York (approximately 16:00 London time). If the head of the White House speaks out positively regarding the deal with China, this will be an additional argument in favor of the Fed's wait-and-see attitude. Otherwise, the Fed chief's speech could be more unpredictable tomorrow.
The US president should clarify two global issues today. First, traders are interested in when the long-awaited first stage of a trade deal with China can be signed (and, in fact, what he agrees to do to make this happen). Secondly, investors are interested in the fate of US-European relations. Let me remind you that at the beginning of this year, Trump once again announced that he was ready to introduce 20 percent duties on cars and auto parts imported from EU countries, if the EU does not reduce or eliminate trade barriers against companies from the United States. But after months of thought, the US president postponed the matter until the end of the year. China played an important role in this, as another escalation of the trade war turned the attention of the White House to Beijing.
But now the six-month deferment is nearing completion, and Trump again needs to make a decision - either introduce duties, or again postpone this issue for six months or later. The automobile industry in Germany, France and Italy may be under attack - according to preliminary estimates, the total cost of the indicated duties is $300 billion. According to experts, in the event of an introduction of US duties, the domino effect will follow: the business climate in the eurozone countries will significantly deteriorate, thereby slowing the growth of already weak key indicators and the economy as a whole. The European Union did not remain in debt and said that in response it would prepare new duties on American goods worth 20 billion euros.
According to the general opinion of the market, Trump will announce a prolongation of the pause in this matter. At least, on the eve of today's speech, such information appeared in the European press. But this morning, American journalists, referring to their sources in the White House, reported that there was no final decision, and given Trump's unpredictability, no one undertook to make any clear predictions about this. That is why the EUR/USD pair interrupted the corrective growth today. After all, if Trump still decides to open a "second front of the trade war," the European Central Bank will probably respond to this fact by expanding incentives - and already at the December meeting. The euro may strengthen its position if Trump announces another postponement, but it is unlikely that the growth of this currency will be large-scale. The US president will only follow the most anticipated scenario, so a statement of fact can simply be ignored by the market.
As for the "Chinese front", there is also a certain intrigue. The other day, Trump again returned to a rather militant rhetoric: he said that he would not fully abolish the introduced duties (which China requires), and the trade deal could be concluded "only on American soil" (Britain was previously discussed in this context). If today he again takes a tough stance, the dollar will negatively perceive this fact in view of a possible reaction from the Fed.
Thus, quite a bit of volatility is expected today at the close of the US session - especially if Trump will surprise the market with unpredictable decisions or statements.
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