The battle for the seventh figure will unfold between the bulls and bears of the EUR/USD pair this week. Sellers were able to get close enough to the support level of 1.0810 (the lower line of the Bollinger Bands indicator on the monthly chart) last Friday, but did not have time to test it. The Asian session traditionally began Monday with a slight correction, although today is not indicative: Presidential Day will be celebrated in the US today, so American trading floors will be closed.
This means that the market will start operating in full force tomorrow - although the economic calendar for the pair is not eventful on Tuesday. Major macroeconomic news will come from Europe, where the February ZEW indices will be published. Negative dynamics are expected both in Germany and the eurozone as a whole- although indicators should still remain above zero. So, for the first time since May last year, the German index the year before the previous one has left the negative area by reaching 10.7 points. It continued the positive trend in January by rising to 26 points. Experts are pessimistic today: the coronavirus factor, dovish rhetoric of Lagarde, slowdown in inflation, weak German data - all these circumstances cannot help but affect the mood of buyers. Therefore, according to experts, the indicator will reach 20 points. The pan-European indicator likewise left the territory of negative values in December, rising to 11 points, and in January to 25 points. The February index should rise to 21 points. But here it is worth noting that if the real numbers coincide with the forecast values, the European currency will stay afloat, because the indices will still remain above zero. But if the downward trend is of a larger scale, the EUR/USD pair will get another reason for its decline.
The US will publish the Producer Price Index (PPI) on Wednesday, February 19, which is an early signal of changes in inflationary trends. Recently, it has been showing contradictory dynamics - in October it jumped to 0.4%, it dropped to zero in November, and rose again to 0.1% in December. A slight increase in the indicator is expected again in January - both in monthly and in annual terms. Excluding food and energy prices, this indicator should also remain above zero (0.1% m/m and 1.6 y/y).
The minutes of the January meeting of the Federal Reserve will be released on Wednesday, which is another important document. Here, first of all, it is necessary to focus on Jerome Powell's latest comments, which were announced after the January meeting. Speaking in the US Congress, the Fed chief focused on the spread of coronavirus, which, he said, could lead to a slowdown in the Chinese economy in the first quarter of this year. Powell said the Fed is closely monitoring this topic, especially in the context of a slowdown in the global economy. He also acknowledged that coronavirus can affect the US economy, but at the same time it is too early to talk about the degree of this influence. In addition, Powell voiced other risks. For example, he was worried about productivity gains. Key indicators in this area are low and this fact reduces corporate profit in the United States. The current situation, according to the head of the Fed, could negatively affect the labor market, taking into account the reduction in capital costs.
It is likely that the general rhetoric of the minutes of the January meeting will be of a similar nature. In general, despite the stated risks, Powell assured Congressmen that the Fed intends to maintain a wait-and-see attitude, unless "unforeseen circumstances" force the regulator to make appropriate decisions. With a high degree of probability, it can be assumed that the members of the Committee came to the same conclusion during the January meeting. This fact will support the US currency.
The ECB minutes will be released on Thursday, February 20. We will find out the details of the regulator's report from the meeting on monetary policy, which took place almost four weeks ago. This document is unlikely to have a strong impact on the pair. Christine Lagarde made it clear enough that the regulator did not intend to change its monetary policy in the near future, while she expressed concern about the slowdown in inflation and industrial production. I believe that the minutes will reflect her opinion, only in a more expanded form.
The PMI indices will be the final chord of the trading week. If these releases follow the ZEW trajectory, the euro will come under additional pressure. In general, experts expect negative dynamics - especially in the provision of services. As for the manufacturing sector, a slight slowdown is forecasted relative to the previous month - the indices will still remain below the key 50-point level (except for the French). The fact of a negative trend can increase pressure on the single currency.
The situation is as follows from a technical point of view. On almost all the higher timeframes (with the exception of MN), the EUR/USD pair is located on the lower line of the Bollinger Bands indicator under all the lines of the Ichimoku indicator, which generated a strong bearish Parade of Lines signal. This indicates a clear advantage of the downward movement. The bearish momentum is so strong that it is too early to talk about a price correction. The coronavirus factor can radically affect the pair - if panic disappears, interest in the dollar will weaken. Otherwise, priority will remain downwards. The main target of the downward movement is located on the lower line of the Bollinger Bands indicator on the monthly chart, that is, at around 1.0810.
