The pulling of the rope between a weak euro and a dollar that is actively losing last year's trumps results in a consolidation development. If in 2018 the US currency actively used such drivers as the acceleration of the US economy under the influence of fiscal stimulus, aggressive monetary restriction of the Fed and high demand for safe-haven assets in terms of trade wars, then events in 2019 such as the GDP slowdown, pause in the normalization process and Washington and Beijing negotiations should have made her a whipping boy. If it were not for one "but." Competitors are in no hurry to take advantage of yesterday's leader's vulnerabilities.
A strong economy is a strong currency. This principle of fundamental analysis has not been canceled. Also, looking at the technical recession in Italy, the eurozone's GDP growth by 0.2% q/q in July-September and in October-December, disappointing statistics on German retail sales and the stubborn unwillingness of core inflation to move away from 1%, we can assume that currency block needs help. For example, it can be in the form of additional monetary incentives (LTRO), which some members of the Governing Council spoke about at the January meeting.
Dynamics of European inflation
In fact, Mario Draghi does not see an emergency in which one could launch a long-term refinancing program for commercial banks or resume QE. Jens Weidmann draws attention to the lack of ammunition to deal with a potential crisis. They say you need to close your eyes to sluggish inflation and begin to normalize monetary policy. In addition, the progress in the negotiations between the US and China is able to lend a helping hand to European exports and accelerate GDP.
In contrast to the euro, burdened with the problems of the economy of the currency bloc, the dollar is losing fans due to a drastic change in the Fed's global outlook. Just 6 weeks ago, the Central Bank was ready to continue raising the federal funds rate at almost the same pace as in 2018, but in January, Jerome Powell claims that the deterioration of macroeconomic statistics for the States will lead to monetary expansion. Investors seriously believed that the normalization cycle had been completed and were eagerly awaiting new incoming data.
In this regard, the release of the report on the US labor market in January more confused investors than clarified the situation despite the impressive increase in employment outside the agricultural sector (+304 thousand). Additionally, other reports such as unemployment rose to 4%, and the average wage showed much less growth than expected (+ 0.1% vs. + 0.3% m / m). The EUR / USD pair has reacted quite vividly to the numbers, but to say that it has decided on the direction of further movement is extremely rash. Consolidation continues and only a breakthrough of resistances at 1.151 and 1.154 will open the way for the bulls to the north.
Technically, correction levels of 78.6% and 88.6% of the CD wave of the Shark pattern are located at these elevations. As a rule, tts transformation into 5-0 gives a hint about the future path of EUR / USD. The fact that the Bears failed to keep the quotes below 50% and 61.8% indicates their weakness.
EUR / USD daily chart
