EUR / USD. Unexpected pair growth: causes and risks

During the Asian session, the euro-dollar pair, as a rule, behaves quietly - with the exception of rare exceptions. Such an exception happened today, when the pair stopped its decline and jumped to the borders of the 13th figure. This is a rather unusual situation. Therefore, the reasons for such price fluctuations are of interest.

It is worth making a reservation right away that there were no obvious reasons for the correction: all information are of "near-market" in nature, and are most likely associated with the struggle for influence on the Fed. As it is known, the White House is actively in favor of easing the monetary policy. Almost all politicians and bureaucrats are calling for such actions, starting with the first person of the state - Donald Trump - ending with full-time economists of his administration. For example, economic adviser to the president Larry Kudlow said yesterday that "as long as he is alive, the interest rate will not be increased." This statement was perceived with a certain irony on social networks, given the venerable age of the adviser. But Kudlow himself is serious enough, urging the Fed to reduce the interest rate by 50 basis points.


But the thing is that the Fed is a priory, an independent body that does not obey either the head of state or the White House. Donald Trump would have long and gladly removed Jerome Powell from office if he could: he formally has such powers, but this requires more weighty reasons (for example, committing a crime) than disagreeing with his policies. Therefore, the White House decided to act differently: to strengthen the Fed's "pigeon wing" with the help of its proteges. Now, we are talking about Stephen Moore and Herman Cain. These individuals have a very mediocre relationship to the country's financial sector - Cain, for example, is a former pizzeria network leader and former presidential candidate for the US Republican Party. Apparently, Trump is not embarrassed, especially since they are actively relaying to his ideas about lowering the interest rate.

On the other hand, Wall Street opposed such appointments - almost all of the economists surveyed said that in such a case the Federal Reserve would be biased and politicized, which would adversely affect the overall business climate in the country. Nevertheless, the White House continues to insist on the appointment of its proteges: the Senate made the relevant submissions and now there are political talks about their support for the senators. Thus, today, there is information that odious candidates have a chance to be appointed to the Board of Governors. And although this information is unconfirmed, the dollar index decreased from 96.8 points to 96.5 in a couple of hours.

In addition, traders drew attention to yesterday's speech by Richard Clarida, who holds the position of Fed Vice Chairman. His rhetoric has become softer with respect to earlier periods. The essence of his speech was reduced to the fact that the interest rate is now at a neutral level, and in the foreseeable future, the regulator will only monitor the situation in the economy. He also repeated the thesis about the slowdown of the US economy and the "muted" inflation. By the way, about inflation, he said a rather interesting phrase: "... inflation expectations are still at the lower end of the range that corresponds to price stability." Here the question arises - what will the Fed do if (when) these expectations decline below the range? And such a scenario is quite real, if we recall the dynamics of core inflation and the growth rate of wages.

In other words, traders unexpectedly responded to the possible strengthening of the "pigeon" wing of the Fed and mitigating the rhetoric of the deputy head of the Fed. Although published the day before yesterday, the minutes of the March meeting of the Federal Reserve showed that most regulator members who are not ready to cut rates in the foreseeable future, intending to keep a pause until the end of 2019. The market ignored the rhetoric of the protocol, while the events of recent days provoked corrective growth in the eur / usd pair. Well, sometimes traders "highlight" and set off certain fundamental factors that have an impact on the pair. In this case, this is exactly what happened.


Despite the impressive correctional growth, the bulls of the eur / usd pair still need to gain a foothold above the mark of 1.1285 (the middle line of the Bollinger Bands indicator on the daily chart) in order to reverse the situation and enter the 13th figure. Otherwise, the price will slide back to the base of the 12th figure, continuing to demonstrate a wide-range flat. At the moment, the pair is trading above the designated target, but do not forget that today is the last trading day, so traders can take profits, thereby putting pressure on eur / usd. Therefore, it is better to take trading decisions on the pair as early as Monday, without leaving open positions for the weekend.

The material has been provided by InstaForex Company -