The European currency paired with the dollar follows the dynamics of the pound again, demonstrating a high correlation dependence. A few months ago, traders of the EUR/USD pair reacted rather apathetic to the events surrounding Brexit, and often completely ignored this topic. But as soon as Brussels and London began to reach the finish line in the negotiations, the euro increasingly began to correlate with the pound, reacting to certain signals. Today is no exception: the EUR/USD is growing impulsively, updating multi-month highs.
Central events are unfolding today, of course, in Salzburg, Austria, where the informal EU summit is taking place. On the eve of this meeting, the market was clearly nervous: the EUR/USD pair unsuccessfully tested the 17th figure, and the pound "flew" in the 100-point range amid conflicting rumors. Traders quite reasonably wondered – were they not ahead of the events, increasing the likelihood of a soft Brexit? And although the comments of the negotiators (especially from the European side) have been positive recently, this positive could be crossed out by Theresa May, once again expressing disagreement on the proposed compromise solutions. Yesterday in the British press there were corresponding rumors, after which the pound collapsed throughout the market, pulling the European currency.
Today, both currencies have more than made up for their losses. The signals that come from Salzburg are mostly constructive, fueling traders' hopes for a peaceful "divorce process." In particular, according to preliminary data, a special EU summit is to be held on November 18: London and Brussels are expected to sign the prominent deal during this meeting. A month earlier, that is, on the 20th of October, there will be another meeting at which the Alliance should give the "good" (or reject) the deal. This information suggests that the parties are serious about finding a compromise, keeping the soft Brexit option as a baseline scenario.
Here it is worth noting that it is too early to make any categorical conclusions at the moment. Long positions on the EUR/USD pair (as well as on the GBP/USD pair) are very risky: the market again runs ahead, ignoring the risks of disappointing comments that can be voiced after the fact. In addition, such emotional, impulsive movements rarely "grow" into a stable trend, especially without corrective price rollbacks. Therefore, if you do not have time to open trading positions before the price shot, then do not be in a hurry to do it now: the probability that optimism will be replaced by the usual alertness is too high, after which the upward impulse will fade away.
None of the speakers has yet to give any clear signal that the deal will be concluded "in any weather". The main message is that the negotiating group still has a lot of work to do, as the key issues of the future agreement have not yet been resolved. In particular, the head of the European Council Donald Tusk stressed that without reaching a compromise on the Irish border there will be no agreement. He urged the British to reconsider (or rather "improve") their position on this issue, hinting at the previously voiced plan of Barnier.
In other words, the market was too "wound up" on the eve of the European summit, waiting for the destructive in the negotiations. This did not happen: the participants of the meeting said that there was a "good discussion" on the Brexit issue in Salzburg. But, on the other hand, there was no clear breakthrough in the negotiation process either. Now all hope for October, when the fate of the "divorce process" will be decided.
This disposition suggests that traders of the euro/dollar pair should now wait for the end of the impulsive movement. If then there is no large-scale price retracement, the pair will finally gain a foothold in the 17th figure, after which it will be possible to talk about further upward prospects. After all, it should be noted that, in addition to the growth of the euro, the US currency is declining throughout the market: the dollar index collapsed in the middle of the 93rd figure. According to most analysts, the duties approved by the White House did not lead to a new round of tension, after which the greenback ceased to be in demand. In addition, the market "recalled" the weak data on inflation growth in the US, which may affect the determination of the Fed's members.
Next week, the Fed will hold its September meeting, so traders are already starting to get nervous about the future prospects. If such experiences will increase, the EUR/USD pair will receive an additional impetus for its growth. Despite the existing correlation, the euro is not so dependent on the Brexit theme, so the pair has the potential for growth due to the weakness of the dollar.
This perspective is confirmed by the technical picture. On the daily chart, the Ichimoku Kinko Hyo indicator formed one of its strongest signals – a bullish "Parade of lines". In addition, the pair is above the Kumo cloud and on the top line of the Bollinger Bands indicator.
All this points to the priority of the upward movement. The support level is the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line (1.1650). But the resistance level is the highest price of the day - 1.1777. If the bulls overcome this price barrier, the pair will aim for the next resistance level of 1.1885 - this is the top line of the Bollinger Bands indicator on the weekly chart, coinciding with the Kijun-sen line.
The material has been provided by InstaForex Company - www.instaforex.com