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The Conservatives' unconditional victory in parliamentary elections paves the way for a quick agreement with the EU. The uncertainty that has been hovering over the market for more than three years begins to dissipate, which allows the fans of the pound to spread their wings. Thus, it is unlikely that it will return to the levels that took place before 2016 referendum, but it is quite capable of growing up to 1.4-1.45. Moreover, the gap between potential and actual GDP will narrow and the British economy will recover, which is good news for both the eurozone and the bulls on EUR/USD.
The dynamics of British GDP:
The second euro issue for 2018-2019 was the trade war. Despite the fact that the eurozone did not directly participate in them, a slowdown in global GDP, international trade, and a decrease in external demand are extremely negative factors for the export-oriented economy of Germany. It was on the verge of a recession, and in such circumstances, the currency cannot be strong.
In mid-December, Donald Trump began to say that not only China wants a negotiation, but he, the US president, also wants it. In turn, investors took this as confirmation of the version that no new tariffs would be introduced from the 15th, and Washington and Beijing were about to sign the agreement. In compensation for the increase in Celestial purchases of agricultural products, the States propose to roll back existing duties on $ 360 billion of Chinese imports, at least by 50%. Next, phase 2 will begin, within which Beijing will most likely require additional concessions. In any case, even the signing of an interim agreement is a sign of de-escalation of the conflict, which gives hope for the restoration of the eurozone economy.
At the same time, Christine Lagarde, replacing Mario Draghi as head of the ECB, does not identify herself with either hawks or doves. She wants to be a "wise owl." This position reduces the probability of an additional monetary stimulus and caresses the ears of the "bulls" on EUR / USD. Now, to continue the rally, they would like to see positive from the German business activity and business climate. Both indicators are closely correlated with German GDP and are rightfully considered to be leading.
German business climate and GDP
So far, everyone looks as though clouds over the euro are beginning to disperse, but who will guarantee that Donald Trump does not start a new trade war? This time with the EU.
Technically, a 113% target for the Double Bottom pattern has been reached, which increases the risk of a rollback to levels of 23.6%, 38.2% and 50% of the CD wave. However, failures from the support may be a signal of the restoration of the upward trend. As a result, the chances of targeting by 78.6% and 161.8% for the Gartley and AB = CD models will increase.
Daily chart for EUR/USD:
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