EUR/USD. The pair lay adrift as it waits for Lagarde and news from China

Trading 05 nov 2019 Donner votre avis

The euro-dollar pair started the trading week calmly and without a gap: the price fluctuated within the 30-point range during the Asian and European sessions, while the downward pressure intensified at the beginning of the US session. But in general, the pair remains within the flat, waiting for the next news impulses.

According to some experts, today's speech by Christine Lagarde (the first in her role of the head of the European Central Bank) will "stir up" traders, but these expectations may not be met, given the subject of the event, in which the head of the ECB will take part. We are talking about Publishers Summit & Night 2019 - a platform for exchanging views with political figures of local, federal and European scale. Among the keynote speakers are the leader of the Union-90/Greens party, Annalena Baerbock, and the Prime Minister of the Federal State of North Rhine - Westphalia Armin Laschet. In turn, Christine Lagarde is an invited guest - she will deliver an opening welcoming speech and is unlikely to touch on the topic of monetary policy prospects. The importance of this event is only that this is the first public speech by Lagarde as the head of the ECB.


Nevertheless, against the background of an almost empty economic calendar, EUR/USD traders can respond to any hints regarding the future prospects of monetary policy. According to general expectations, the new head of the ECB will take a very dovish position, outlining further steps towards easing the parameters of monetary policy. In early September, Lagarde announced that she "does not believe" that the ECB has set an effective lower limit for interest rates - it has hinted quite transparently at an acceptable backlash in this matter, thereby putting significant pressure on the European currency. This means that the European regulator may not be limited to one round of lowering rates further into the negative area. Following the requirements of a certain diplomacy, she added that the nature of the regulator's further actions will depend on the conditions of the financial market, as well as on the dynamics of inflation growth.

Let me remind you that last week preliminary data on the growth of European inflation for October were published. The general index came out at a forecasted level (0.7%), continuing a gradual decline, while core inflation, on the contrary, surprised with unexpected growth. The core index is gradually growing already a second month ago, having returned in October to the June level (1.1%). And although inflationary growth is too slow and measured, the very fact of positive dynamics can play a role.

After all, not everyone in the ECB camp advocates further easing of monetary policy. In September, representatives of Germany, France and Austria opposed the resumption of QE. A member of the Board of Governors Benoit Ceure also spoke against this idea. The regulator was then able to find votes to make a decision, but in its minimal execution. So, according to general market expectations, the volume of QE should have been much larger. On the eve of the meeting, currency strategists warned their clients that the ECB would buy back assets worth 30-40 billion euros per month. Some experts did not rule out the 50 billionth value. But as you know, the regulator stopped at a monthly volume of 20 billion euros. A similar situation exists with the interest rate: traders were ready to lower it to -0.6%, while the ECB limited itself to a more modest step - to -0.5%.

All this suggests that it will not be easy for Christine Lagarde and her dovish camp companion Philip Lane (ECB chief economist) to convince colleagues to take another decision in the direction of reducing rates or increasing the volume of the incentive program. Extremely weak, but still rising inflation will complicate an already difficult task.

Thus, the position of Lagarde in any case must be considered in view of the fact that among the members of the European regulator in September there was a split. And although Mario Draghi during his last press conference tried to refute this information, the rhetoric of his colleagues says the opposite. According to available information, more than a third of politicians, including the heads of banks in France and Germany, opposed the new program of buying securities.

That is why the decline in the EUR/USD pair is limited - despite a certain pressure, the pair stays in the middle of the 11th figure. In addition to the relatively good data on the growth of European inflation, which were published last week, good data on the growth of PMI in the manufacturing sector of Europe were released today. The German index, although it remained below the key 50th mark, still showed growth, contrary to pessimistic forecasts of experts. The same can be said about the French: the indicator was in the green zone, rising to 50.7 points. The composite PMI in the eurozone also showed low, but still growth (up to 45.9 points), complementing the fundamental picture for EUR/USD.


To summarize the above, it should be noted that all the events occurring today in the foreign exchange market can be described as "market noise". After the high-profile events of the past week, the EUR/USD pair traders took profits and froze in anticipation of further events. First of all, we are talking about the prospects of the negotiation process between the United States and China - in the foreseeable future, this topic will set the tone for the bidding. All other fundamental factors will play a secondary role, and the reaction of EUR/USD traders will be short-term.

From a technical point of view, bulls still need to overcome the 12.20 mark - this is the upper line of the Bollinger Bands on the daily chart. In this case, buyers can expect a larger price increase - up to 13.10, which corresponds to the lower boundary of the Kumo cloud and the upper Bollinger Bands line already on the weekly chart. The support level is the level of 1.1090 (the middle line of the BB at D1, which coincides with the upper boundary of the Kumo cloud).

The material has been provided by InstaForex Company -

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