Anti-risk sentiment is growing in the foreign exchange market, reflecting the increasing geopolitical tensions in the world. China and the United States entered the trade clinch. The likelihood of a "tough" Brexit is also growing every day, and this week, there is information about the upcoming sanctions against Britain, Germany and France from the United States for the possible use of the INSTEX financial mechanism. Against the background of such a gloomy fundamental picture, the American currency feels more than confident: the dollar index has updated the local maximum yesterday, at the level of 98.16. But on the contrary, the single currency loses its points, being under additional pressure of the political conflict between Rome and Brussels.
Nevertheless, EUR/USD bears cannot take full advantage of the strong greenback. Sellers are strenuously pulling the pair to the base of the 11th figure, to an annual minimum of 1,1105, which is a "concurrent" level of support. But as soon as the price approaches the area of key targets, the southern impulse fades away, and buyers in turn seized the initiative. The same thing happened yesterday: the US base PCE, for the first quarter of this year, was revised downward, as well as the GDP indicator. This fact has cooled the fervor of the sellers, and the pair slowed down its fall.
Of course, a trend reversal is out of the question: the maximum that the EUR/USD bulls are capable of right now is a modest correction within 40-60 points. In a more global aspect, buyers of the pair need to stay above the 10th figure in order to avoid falling into price levels for 2015-2016 (that is, in the range of 1.04-1.08). All the other desires of the bulls of the pair are now impossible to fulfill: a trend reversal is possible only if China and the US sit down again at the negotiating table, and the risk of a tough Brexit will be leveled at least by another delay. But so far, the situation has only worsened - both in the sphere of US-China relations, and in the sphere of the prospects for the "divorce process of Britain with the EU.
Thus, it became known that China has suspended purchases of soybeans in the United States, thereby confirming the next round of escalation of the trade conflict between the countries. In a sense, this is a momentous event, given the "background" of this issue. Indeed, at the beginning of the year, the Chinese agreed to increase the volume of purchases of American agricultural products (soybeans, corn and wheat) only as a compromise. Beijing promised to purchase products of this category for a total amount of up to $ 30 billion: as a result, these volumes should have exceeded the "pre-war" figures. It was a good sign for those who expected to conclude a trade deal between the superpowers. This sign has acquired a negative value: the Chinese have once again confirmed their readiness to further escalate the conflict.
And here, it is worth recalling that according to rumors circulated, China is preparing to deliver a more significant blow to the United States by restricting or banning the export of rare earth metals. The largest consumers of rare-earth metals include American industrial companies that develop not only innovative technologies, but also military equipment. In turn, China accounts for about 80% of the global supply of rare earth metals. Does Beijing use such a powerful Trump card in a protracted trade conflict? The experts do not have a common opinion on this issue, however, the PRC leader has already hinted rather clearly at such an opportunity, suddenly visiting one of the enterprises for processing RMP on a working visit.
In addition to the global trade war, the pair EUR/USD are under pressure from more "local" problems. It's about Brexit and the political conflict between Rome and Brussels. During the other day, the market was optimistic about the idea of the Irish Prime Minister that the date of Brexit could be rescheduled. According to him, if on the other side of the scale there is a "hard" Brexit, then it is advisable for the European Union to postpone the British release date from the Alliance from October 31 to a later date. Such an idea was liked by traders, because at this rate, the parties can reach even the next general parliamentary elections in Britain, which Laborists can win.
But yesterday, there was information that Germany will not agree to such a scenario. To be more precise, the Germans put forward the condition of London: either the British announce the holding of a second referendum, or hold general special elections this fall - in October or November. Only in this case will Germany agree to another postponement of Brexit. Obviously, if Boris Johnson (who is still leading in the political race) becomes the next prime minister, he will not agree to this scenario. Consequently, the "hard" Brexit again loomed on the horizon with all the ensuing consequences.
Thus, the fundamental background is still conducive to testing the price minima of this year - bears are quite able to touch the mark of 1.1105. But to enter the 10th figure (and even more so to consolidate in this area), sellers need a strong informational occasion. Therefore, short positions in a pair at the base of the 11th figure look extremely risky, given the high probability of corrective pullback.
