EUR/USD bulls drew it up above figure 14 bottom due to the support of the pound and the yuan

Will the euro grow up, supported by other currencies? The best GBP daily rally since April, 2017 and the CNY increase from the zone of multi-year low encouraged the EUR/USD bulls to go ahead. Should one count too much on it? I don’t think so. Despite the Reuters experts’ optimistic projections for the euro at $1,16 и в $1,2 in 3 and 12 months, over 80% of strategists believe that, in the middle term, the actual value will hardly meet the expectations. The main reasons are the euro area weak economy growth and the Italy’s political crisis.

I expected the Bank of England to sound hawkish, but not that much! According to Mark Carney, if Theresa May manages to strike a deal with the EU, the BoE will have to hike its Bank rate up to 1.5% during the next three years. Earlier, it was about 1%. A more aggressive than the markets expect monetary restriction, as a rule, results in the local currency’s sharp surge; and the sterling has proved it. Investors were again reminded about a positive settlement of Brexit issues, which is good news not only for the UK, but for the euro area as well. The political risks, associated with the UK, have pressing down not only GBP/USD, but EUR/USD as well; it was proven by the currency pairs, moving in sync.

Dynamics of GBP/USD and EUR/USD

Source: Trading Economics.

The euro bulls have also benefited from a decline in the US Manufacturing PMI down to its half-year low and the optimism, expressed by the presidents of the USA and China. According to Donald Trump, he had a very good phone talk with Xi Jinping. They were discussing numerous issues, focusing on trade. The US president believes that the talks were "moving along nicely".  He asked the US administration to outline the future deal before the G-20 summit in Argentina. There, the US president and his Chinese counterpart are going to have a meeting.

Remember, the US president imposed tariffs on Chinese imports, worth $250 billion, and was threatening to boost them on all products, imported from China; it had a negative influence on the yuan. As it is up from the zone of multi-year lows, the euro is growing stronger. The single European, due to a significant share of exports in GDP, was especially responsive to the trade wars. Therefore, the easing of the conflict is a bullish factor for the EURUSD

Dynamics of EUR/USD and USD/CNY


Source: Trading Economics

The key events for the major currency pair during the next few days will be the reports on the US employment and the US mid-term elections. According to MUFG, if Republicans take the majority in the both Houses of the Congress, the fiscal stimulus will be more likely to expand; Democrats’ victory will create pressure for the impeachment. Disappointing statistics on the wages will reduce the chances for the Fed’s hiking the rate at the current pace and support the EURUSD rise towards the top border of the short-term consolidation range at 1.13-1.16.

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Price chart of EURUSD in real time mode

Euro: Old Friends are Best

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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