EUR/USD: Trump can break the upward impulse on Monday

The information picture of Monday is quite diverse. On the one hand, Trump, who threatens to introduce new tariffs on Chinese imports, and on the other hand, the ECB, whose representatives continue to demonstrate an optimistic attitude.

Despite the inconsistency of the fundamental background of the EUR/USD, traders still prefer the European currency, which allowed the pair to recover its lost positions on Friday. But further growth remains questionable: the bulls of the EUR/USD need to consolidate above 1.1650 and keep this height as long as possible – otherwise the price may finally slide to the base of the 16th figure. Therefore, the dynamics of the next few days will allow us to understand whether the pair has the potential to enter the 17th figure or we are waiting for a sluggish flat at the border of 1.15 and 1.16.

First of all, you should understand why the dollar so rapidly rose throughout the market on the final day of last week. The reason, by and large, one – the notorious American-Chinese trade war. According to the American press, Donald Trump can already announce the introduction of new tariffs on imported goods from China on Monday. As journalists have specified, it is about a 10-percentage duties on goods with a total cost of $200 billion.

This is not official, but rather insider information with reference to anonymous high-ranking sources in the White House. Last night in the American press there was one more message which confirmed intention of the USA to aggravate the trade war. However, this publication carried a slightly different message: China will abandon the planned negotiations if Washington approves the introduction of new tariffs. Let me remind you that the next round of new talks should begin this week, so the information about the intentions of the White House looks somewhat premature.

However, based on the above publications, today you must take caution to open positions in the dollar pairs, including the EUR/USD. In my opinion, the information on the approval of new tariffs will not be confirmed (at least until the completion of the next negotiations), but if Trump for any reason decides to take this step, the dollar will be in strong demand, as the greenback will once again be used as a defensive asset.

Judging by the current dynamics of the EUR/USD pair, the market does not believe in the escalation of the trade war, at least within the framework of today. Friday's emotions subsided, and the price was able to recover to the middle of the 16th figure. Moreover, the upward dynamics was due to several fundamental factors.

So, quite optimistic report of the Bundesbank was released today. This document is published monthly, but very rarely affects price fluctuations. But today, firstly, an almost empty economic calendar, and secondly, the optimism of the Germans coincided with the "hawkish" attitude of the ECB, which was demonstrated just last week. The main theses of the report of the German central bank are that in autumn the country's economy is expected to grow significantly, and it's summer slowdown is due to temporary factors.

In particular, the members of the regulator explain the decline in production activity in the automotive industry by the transition to new environmental standards. According to experts, in the near future the situation in this sector of the economy will be leveled. In addition, the Bundesbank noted that domestic demand remains at a high level, and the main economic indicators will show positive dynamics this year. It is worth noting that the German economy is called the "locomotive" of the EU economy, so such forecasts supported the growth of the European currency.

Comments of representatives of the ECB is also fuelling the growth of the EUR/USD pair. For example, the Head of the Bank of Lithuania, a member of the European regulator Vitas Vasiliauskas, said at the weekend that the issue of extending the stimulus program is not on the agenda and generally "not worthy of discussion". In addition, he noted that the slowdown of the European economy was an expected event, and by the end of the year the key indicators should show growth.

By the way, this position echoes the above-mentioned report of the Bundesbank, the effect of which has increased due to the final assessment of the growth of European inflation published today. Contrary to some concerns, the indicator was not revised downward and remained at the initial levels (CPI growth at 2%, core inflation – 1%). Despite the relative insignificance of these fundamental factors, they created an overall favorable atmosphere for the growth of the European currency. In the context of the EUR/USD, this allows the pair's bulls to hold the price above 1.1650 and demonstrate their dominance.

And, nevertheless, it is necessary to refrain from long positions so far – at least until the end of the current day. The US trading session may give the EUR/USD bulls an unpleasant surprise in the form of Trump's comments on the new tariffs. Even if his statements are not specific without time reference points, the pair will still be under considerable pressure, returning to the base of the 16th figure. But if the market understands that the US president has decided to take a break until the completion of the next US-Chinese negotiations, the euro will continue its growth to the resistance level of 1.1715 – this is the upper line of the Bollinger Bands indicator on the daily chart.