Good Monday for the euro: reasons for the correction of EUR/USD and target levels

On the first trading day of the week, the dollar bulls weakened their grip, after which the EUR/USD pair was able to move away from the levels of local minima and even demonstrate a fairly clear correction, rising to the middle of the 12th figure. The pair has the first resistance level of 1.1285 (the middle line of the Bollinger Bands indicator on the daily chart) when overcoming which it will be possible to speak with confidence about the conquest of the 13th figure, at least to the level of 1.1315 (the Kijun-Sen line on the daily chart). However, it is still too early to talk about this, given the unreliability of those fundamental factors that are now pushing the pair up.

The correction of the euro-dollar pair is due to two reasons: first, the decline in the yield of 10-year-old American Treasuries, and secondly – rumors that the European regulator at its April meeting may revise the policy of negative rates. The combination of such fundamental factors weakened the greenbacks and allowed the EUR/USD bulls to show character. If we consider the situation in a broader aspect, today's corrective growth is due to the fact that the bears did not push and did not gain a foothold below 1.1160. According to the results of Friday Nonfarms, the sellers could not even reach this level of support, which is of key importance for the development of the southern trend. The events of Monday finally knocked the ground out from under the sellers' feet, after which the buyers expectedly intercepted the initiative.

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After the publication of conflicting data on the US labor market, traders did not immediately determine the EUR/USD movement. First, the pendulum swung towards the bulls of the pair, then the mood changed, and the price completed the five-day trading at the bottom of the 12th figure. Today, the market has decided that "the glass is still half empty", rather than vice versa: a significant slowdown in wage growth indicates a further slowdown in US inflation. Against the background of such prospects, record low unemployment and an impressive increase in the number of employed could not convince traders: the dollar began to slowly get rid of. By and large, the US labor market has always been reliable support for the dollar, while downward inflation can play a decisive role in determining the future fate of the Fed's monetary policy. Given the recent statements by Trump and his protege at the Fed, Stephen Moore about the need to lower the rate, the overall picture does not appear in favor of the dollar, despite the restoration of Nonfarm (relative to February values).

In addition, the market is optimistic about the outcome of the next negotiations between Beijing and Washington. The previous round ended on April 5, and this week the parties will meet again, continuing the discussion of the details of the "broad" trade transaction. The probability that the tariff war will end with a truce (and in the foreseeable future) is growing "by leaps and bounds," especially after the loud statement of Donald Trump. Many experts are confident that the deal will be signed before the end of April, although in my opinion, these are too hasty conclusions. The tone of the rhetoric of the representatives of China and the United States has really changed lately, but any statement on this issue is accompanied by a note about the remaining differences. Therefore, most likely the parties will finally blow out to the finish line closer to the beginning of the summer, that is, to the G20 summit, which will be held on June 8-9. Nevertheless, the general mood in the market has changed, the risk appetite has increased, and the yield of treasuries, as well as the demand for the dollar – has decreased.

The above factors put pressure on the US currency, while the single currency received unexpected support from the European Central Bank. Last week, Mario Draghi rather transparently hinted that members of the regulator are concerned about the "negative consequences of negative interest rates". Although this statement cannot be interpreted as a signal for a possible tightening of monetary policy, such rhetoric surprised traders. The fact is that earlier members of the ECB expressed confidence that negative rates have only a positive effect on the eurozone economy, keeping silent about side effects.

Initially, this statement by Draghi put pressure on the euro because the losses of the banking sector of the ECB can be reduced by using LTRO or similar mechanisms. But this week it was reported that representatives of the German banking sector called on the European Central Bank to introduce a differential rate on deposits. At the moment, there is no reliable information – whether the members of the regulator agree to consider this issue at the April meeting or not. But the issue of reducing the interest rate will certainly not be discussed – this was reported today by two news agencies, citing informed sources. This fact was the main reason for the strengthening of the single currency, against the backdrop of the weakening of the dollar and a general fundamental background in the market.

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Despite the impressive correctional growth, the bulls of the EUR/USD pair still need to gain a foothold above 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.

The material has been provided by InstaForex Company - www.instaforex.com

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