Euro buyers are now in a very depressed state. Their position has weakened and the burden of problems, which puts pressure on the single currency, is becoming increasingly difficult.
In the second half of last year, the German economy nearly fell into recession, as local exports were severely affected by trade wars and falling external demand. In January, there was hope for improvement, but yet another outbreak of conflict between the United States and China brought everything back to square one. At the same time, eurosceptics and the British pound with their Brexit are pulling the euro to the bottom. It would seem that Marine Le Pen, two years ago, lost the election to Emmanuel Macron, and the Italian populists had to admit that their plans did not come true. Elections to the European Parliament – a special case that allows you to remember the old ideas, especially since a wave of protests swept France, and the economy of Italy is barely alive.
Strange, but the increasing political risks in Europe does not swing the volatility of the euro, as it was before. Perhaps the reason lies in the "dovish" rhetoric of the world's leading Central Bank. Investors are not particularly worried about the lack of liquidity. A combination of two factors constrains the euro from sharp fluctuations: weak volatility and deterioration of risk appetite.
The euro goes in a narrow range during the whole month of May. The EUR/USD pair started the new week very sluggishly, but maybe the busy calendar of the second part of the five-day period will bring it out of sleep. Ahead of the publication of minutes of meetings of the Fed and the ECB. For EUR/USD, the combination of these two drivers is explosive.
Mario Draghi's rhetoric may weaken the European currency, and the dollar, on the contrary, will demonstrate another wave of growth. However, the dollar index is now at its highs, and it is possible that at a press conference, it can give up.
It is not necessary to focus only on the comments of the Central Bank, as one of the main roles can draw on additional factors, such as news about trade wars. A big fan of provocations – Donald trump – can write another post on Twitter, and the market will spread rumors.
In favor of the weakening of the US currency after the publication of the minutes of the FOMC meeting is the fact that inflation expectations are at minimum levels. The Fed may well lower the interest rate.
From the European Central Bank, too, should not expect "hawkish" rhetoric. In April, the regulator was not yet aware of the acceleration of the European and German economies, or the acceleration of inflation. The single currency is under pressure from fears of a further decline in business activity, because purchasing managers were already aware of the new round of trade wars. Thus, the breakthrough of $1.13 will increase the risks of further depreciation of EUR/USD to $1.1. For the pair to grow, buyers need to move the quotes above $1.12.
The material has been provided by InstaForex Company - www.instaforex.com