What does not kill, it makes us stronger. Neither the mass resignation of ministers in Britain, the threat of insurrection in parliament and the vote of no confidence in Theresa May, nor Italy's refusal to rewrite the draft budget submitted to Brussels did not drown the euro ship. But the increased political risks in the Old World became the catalyst of the EUR/USD pair to peak at a 17-month lows in the first half of November. Who could have imagined that the EU's silence and a riot inside Albion would allow the bulls to form the bottom?
In order to understand what is happening, you need to get into the heads of speculators. They have long been accumulating long positions on the US dollar, and now they fear the risks of lost profits. This is when the profits on the computer screen are alike but you don't know what to do -either keep holding longs or start getting rid of them. The version that the US economy and the process of normalizing the monetary policy of the Fed will slow down. In this regard, the slightest hint of weakness of the USD index leads to its sales. The cost of core inflation in the States did not reach forecasts (+ 2.1% against the estimate of + 2.2%) as the EUR / USD pair went up.
Thus, the success of the "bulls" in the main currency pair is entirely due to the closure of speculative positions on the US dollar. In the third quarter, the German economy went into minus for the first time in 3.5 years, the core inflation in the eurozone doesn't protest. Political risks are high and the ECB chief economist Peter Praet talks about maintaining ultra-soft monetary policy for a long time that is If necessary and while it looks necessary.
Dynamics of core inflation in the euro area
In the week to November 23, the situation may change radically. Firstly, the economic calendar for the euro seems to be more saturated than for the dollar. Secondly, Brussels can not be silent forever and certainly will say a couple of affectionate Rome. Thirdly, the G20 summit will take place at the end of the week. On the sidelines of which, Donald Trump and Xi Jinping will meet.
The minutes of the October meeting of the Governing Council of the ECB and the release of data on business activity in the eurozone will clarify the views of the Central Bank and the prospects for economic recovery of the currency bloc in the fourth quarter. I doubt that the EU will make concessions to Italy and the exacerbation of political risks will contribute to the growth of the republic's bond yields, as well as the expansion of spreads with German counterparts and sales of EUR/USD pair. It is unlikely that the meeting of the leaders of the United States and China will put an end to the trade war and buying euros on positive expectations can be replaced by sales given the fact.
Technically, there is a transformation of the Shark pattern at 5-0 on the daily EUR / USD chart. As a rule, kickbacks in the direction of 23.6%, 38.2% and 50% are used to form short positions.
EUR / USD daily chart
