19.02.202009:15 Forex Analysis & Reviews: Collapse of the euro against the US dollar is restrained by the Fed's "soft" policy only (we expect EUR/USD pair to continue to decline and the GBP/USD pair to decline)

The single currency is under strong pressure on the wave of two main reasons - on the one hand, the expectation that the ECB can expand incentive measures, and on the other, strong signals about the slowdown in German economy.

Over the past month, the single European currency, paired with the US dollar, declined to the values of February 2016, while the risks of an even deeper fall of the pair continues. The main reasons for this are the growing confidence of investors that the ECB will not only maintain the current "soft" monetary policy, but may also begin to expand incentive measures. This means that the current level of interest rates will remain at historically minimal values, while the euro will increase liquidity in the financial system, which will put pressure on the euro exchange rate.

If earlier, European officials hoped that the German economy would be able to get the euro region out of the crisis, which has actually been going on for 12 years, then the incoming economic statistics from Germany are disappointing and can serve as yet another reason for expanding incentive measures, which ultimately will have pressure on the euro.

According to data released on Tuesday, the ZEW current economic index for Germany in February declined to -15.7 points from -9.5 points, while a decrease to -10.3 points was forecasted. In February, the ZEW economic sentiment index in Germany collapsed to 8.7 points from 26.7 points, while a decrease to 21.5 points was supposed. In addition, the February value of the ZEW economic sentiment index in the eurozone declined to 10.4 points from a value of 25.6 points against the forecast for growth to 30.0 points.

These data eloquently confirm our argument that, given the weakness of the economy of the eurozone leader in Germany, the ECB will have to act and come up with new measures to support the region's economy, which means that the euro will remain under pressure in these conditions. It can be noted that its collapse in pairing with the dollar is restrained only by stimulus measures from the Fed. However, any improvement in the United States, which may, for example, result in a halt in the repurchase of bonds by the US regulator, will immediately lead to a decline in the euro/dollar pair.

We continue to believe that the current general situation in the currency exchange markets this week is unlikely to change significantly. This state of affairs is confirmed by the distribution of net positions in the futures market, according to the reporting, Commitments of Traders (COT).

Today, the attention of the market will be turned to the publication of consumer inflation data in Britain and Canada, as well as to the contents of the minutes of the last meeting of the Federal Reserve.

Forecast of the day:

EUR/USD is trading above the level of 1.0785. The content of the Fed's minutes that the bank will not change monetary policy in the foreseeable future may support the dollar. We believe it is possible to sell the pair after it declines below the level of 1.0785 with the target of 1.0750 or even lower to 1.0725.

GBP/USD is consolidating above the level of 1.2985. It may continue to decline if the data on inflation in the UK are worse than expected. In this case, we consider it possible to sell it with the target of 1.2940, and then 1.2870 after crossing the level of 1.2985.