18.03.201908:55 Forex Analysis & Reviews: EUR / USD: a bad start for the dollar

Against the background of the half-empty economic calendar on Monday, the EUR / USD pair continues to follow the dynamics of the dollar index, which in turn responds to events of a global nature.

The Brexit issue, the March meeting of the Fed, and the prospects for the resumption of the trade war remain in the focus of attention of traders, determining the upward direction of the currency pair. At the end of the weekend, the US currency lost its positions, which allowed eur / usd buyers to push back from the support level of 1.1320 (the Bollinger Bands average line on the daily chart) during the Asian session and demonstrate a modest corrective movement. The situational weakening of the dollar is explained for several reasons.

Let me remind you that last week, it became known that Beijing and Washington could not agree on all the points of the future trade transaction. Therefore, the meeting of the leaders of the PRC and the USA was postponed indefinitely. At first, rumors were about April, but then this information was not confirmed - the American sales representative, Lighthizer, said that he could not talk about any predictions and deadlines for the completion of negotiations, "since there are still significant differences between the countries."

Such a turn of events disappointed investors, and anti-risk sentiments returned to the market, which provided substantial support to the dollar. But such support was temporary: it was already at the weekend that it became known that the leaders of China and the United States could sign a new trade agreement at the end of June. According to the Chinese press, the text of the agreement is almost agreed, but the heads of state do not have time to prepare for the "historic summit", so they are forced to postpone the date of its holding for several months. In addition, the parties have not yet reached a compromise on a number of "minor issues", thus, representatives of the working group continue to discuss the text of the trade agreement.

This information has changed the general attitude of the foreign exchange market.Commodity currencies (Australian dollar, New Zealand dollar, Canadian, etc.) opened the trading week with growth, but greenback, on the contrary, significantly slowed down. And although the issue of concluding a broad trade deal remained in a state of limbo, the worst fears of the traders were not confirmed: the negotiations did not reach an impasse, and the parties did not "slam the doors", thereby threatening to resume the trade conflict. If the information of the Chinese press is true, then anti-risk sentiment in the market will increase. Otherwise (if the US refuses to follow), the dollar will return to its minimal growth.

In any case, dollar bulls will focus on another fundamental event in the very near future. On Wednesday, the results of the March Fed meeting will be known, which will make it possible to understand whether the mood of the members of the regulator has changed, given the dynamics of the latest economic releases. The fact is that the macroeconomic statistics of the United States was multi-directional. For example, against the background of decreasing unemployment and rising wages, non-farm showed an extremely weak growth - only 20 thousand.

Similar contradictions with inflationary indicators. The February consumer price index came out at a predictable level, while core inflation is in the red zone, showing a slowdown. The producer price index also showed a weak trend: contrary to the projected growth of up to 0.2%, it rose only to 0.1%, continuing to be in the zero level area (in December and January, the index was at the level of -0.1%). The remaining figures are also not encouraging: for example, industrial production in the United States collapsed immediately by 0.4% at the end of last month, showing a downward trend for the second month in a row. The Empire Manufacturing manufacturing index (based on a survey of manufacturers in the New York Federal Reserve Bank) also turned out to be lower than forecast.

In other words, representatives of the "pigeon" camp of the Fed have enough arguments to defend their position. Moreover, according to a number of experts, cautious ideas could be heard about easing monetary policy at the March meeting. By and large, dollar bulls are afraid of the implementation of this particular scenario, since a long pause in the rate hike cycle has already been taken into account in prices. But on regards with lowering the rate, they say so far "in a low voice", and mostly only among financial experts: some of them say that the Fed may allow the option of implementing a soft scenario in the near future.

However, not all analysts agree with this opinion, pointing to the dynamics of wage growth. But even a hypothetical probability provokes nervousness, putting the background pressure on the dollar. It is worth recalling here that following the March meeting, so-called "Fed points" (dot plots) will be published, which will indicate the likely actions of the regulator this year. Therefore, the value of this meeting is particularly high, given the controversial assessment of the prospects for monetary policy in the United States.

Thus, the pair EUR / USD has the potential for its further recovery, if only concerns about the US-China trade relations do not return to the market. On the technical side, the pair has fixed above the middle line of the Bollinger Bands indicator. Also, the price is above the lines of Tenkan-sen and Kijun-sen, which are under the Kumo cloud, thus forming the Golden Cross signal, which signals a trend change to an upward one. The closest resistance level is 1.1400 - this is the lower boundary of the Kumo cloud.