EUR/USD Bears Back In Control

EUR/USD bears are retesting the bottom of the trading range at 1.1265-1.1485 EUR/USD bears get back the control due to discouraging statistics on the euro-area industrial production and stronger data on the U.S. consumer prices than Bloomberg experts had expected. The EU faces a strong decline in the GDP growth, as, if France is ceasing to consume, and Germany – to produce, the problem is obvious. Economic indicators in the euro area regularly fail to meet the expectation, which presses down the Citigroup (NYSE:C) economic surprise index for the euro area. The gap with its U.S. peer explains why the euro is going down to the U.S. dollar.

Citi Economic Surprise Indexes

Source: Bloomberg\

One may, of course, hope that economic problems in the currency block are temporary, and, once the trade wars end, European export will immediately recover, but, in fact, things are not that simple. In fact, it will extend uncertainty, rather than ease it. The PMI will further go down, followed by the euro-area GDP. In addition, after the report on the impact of foreign automotive industry on the U.S. economic safety is published, Trump will need to decide about tariffs on European imports. The opponents may change in the trade war, and it doesn’t support the EUR/USD bulls as well.

It is remarkable that, despite the success of the U.S. dollar, hedge funds go on increasing the dollar shorts, and large banks stick to their bearish forecasts. The complete situation with speculative positions, reported by CFTC, is not yet clear due to the U.S. government shutdown, however, according to Citigroup, foreign exchange speculators are back to the greenback net shorts for the first time since March 2018.

Dynamics Of Speculative Positioning And USD Index

Source: Bloomberg

According to Goldman Sachs (NYSE:GS), Jerome Powell and his team should be rather responsive to the negative news, while the positive will be ignored by the Fed. Therefore, the chances of the federal funds rate cut will be growing, and the U.S. dollar – falling down. The Bank recommends selling the USD index with a target at 93.

In early 2018, I predicted that the EUR/USD would rise in the middle-term outlook, but, in the short run, the pair would be consolidating in the range of 1.1265-1.1485, is likely to drop to its bottom. I suggested that the main reason was the U.S. positive economic data, being regularly published, which should have started going down only late February or in March. Unfortunately, I couldn’t assume that the euro-area will look so weak. This fact makes the EUR/USD rate more likely to be falling down towards 1.118 and 1.11 if the support at 1.1265 is successfully stormed. But still, I hope that the euro bulls will have the power to return to consolidation.

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