"You do not win – you win" - this is the principle that bears and bulls of the EUR/USD pair have been following over the past two weeks. By and large, the price is stuck in the price range of 1.1170-1.1210, although both buyers and sellers of the pair make periodic attempts to break through the above boundaries.
So, on May 3, the pair dropped to the bottom of the 11th figure, whereas yesterday the bulls updated the 3-week high, reaching 1.1264. But neither bulls nor bears are able to develop a large-scale offensive with overcoming key levels of resistance and support. Therefore, as soon as some traders lose grip, their opponents immediately seize the initiative, turning the price in the opposite direction. The controversial fundamental background (for both the euro and the dollar) contributes to a similar price ping-pong.
So this time the bulls could not take advantage of the situation when the dollar weakened its position in the entire market. Let me remind you that a temporary, but very significant, the greenback's decline was recorded yesterday, when sufficient alarming rumors from China surfaced on the market. According to journalists, the Chinese are considering the possibility of selling off US public debt, developing various schemes for implementing this idea. Such rumors appeared against the background of the introduction of retaliatory measures by China (additional duties on the importation of American goods worth a total of $60 billion).
Panic moods soared among traders just a few hours, until a representative of the Ministry of Foreign Affairs of China reported that Beijing and Washington agreed to continue trade negotiations to resolve the conflict. The dollar index crawled up again, and the euro-dollar pair retreated to the region of the mid-12th figure. Nevertheless, due to the upward impulse, the price consolidated above the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen and Kijun-sen line (1.1210). From a technical point of view, this arrangement allowed the bulls to rise above, at least to the mark of 1.1270 (the lower boundary of the Kumo cloud, which coincides with the upper line of the Bollinger Bands indicator on the daily chart), thereby claiming the 13th figure. But as soon as the price updated the multi-week high, the bulls met with strong resistance, because, firstly, traders began to take profits, and secondly, the dollar began to be in demand again.
Today, this trend has continued. This also contributed to the disappointing macroeconomic data. Thus, during the European session, the ZEW Institute published its Sentiment Index regarding the business environment of Germany and throughout the eurozone. The German indicator in April showed the strongest increase over the last year: for the first time since March 2018, the indicator came out of the negative area. The growth of the index in the eurozone as a whole for the first time in 11 months exceeded zero, exceeding the expectations of analysts. According to preliminary forecasts, a positive trend should also follow in May - both in Germany and in Europe as a whole. But alas - the indicators again disappointed. Both German and European indices returned to the negative area (-2.1 and -1.6 points, respectively). Although the dynamics of the decline was not critical (for comparison, the indicator was at the level of -20 points in February), the trend itself disappointed investors.
However, the weak results from ZEW served only as a "prelude": the fundamental background for the euro darkened significantly following the comments made by Italian Vice-Premier Matteo Salvini, who said that Italy was ready to break EU budget rules to reduce unemployment. I think it's not worth mentioning in detail about the recent epic of the negotiation process between Rome and Brussels, when the parties could not agree on the target level of the budget deficit for several months. EU leaders threatened Rome with disciplinary measures (a fine of 0.2% of GDP), while the Italians threatened to withdraw from the eurozone and the EU in general. But Italy is not Britain, so the parties eventually came to a consensus, after which the traders safely forgot about this problem.
According to Salvini, the Italian Cabinet of Ministers intends to reduce the unemployment rate from 10% to 5%, even if it requires increasing the budget deficit to 3% of GDP and temporarily increasing the national debt of the country. On the one hand, such a statement will increase the tension between Rome and Brussels - and this fact puts pressure on the euro. On the other hand, we should not forget that the elections to the European Parliament will take place on May 26, therefore, any loud statements by European politicians should be viewed through the prism of electoral populism.
Thus, the fundamental background for the euro helps pull down the EUR/USD pair. However, the voiced fundamental factors are short-term in nature and are unlikely to help bears overcome the key resistance level of 1.1130 (the bottom line of the Bollinger Bands indicator on the daily chart). If Chinese data on industrial output tomorrow (May 15) comes out better than expected, and US retail sales, on the contrary, disappoint, EUR/USD will return to the mid-12th figure, where the price ceiling will be 1.1270 (the lower boundary of the Kumo cloud on D1).
The material has been provided by InstaForex Company - www.instaforex.com