- EUR/USD's next move higher is contingent on further trade optimism.
- Economists expect upbeat US retail sales figures for December.
- The ECB's meeting minutes from Lagarde's first decision are also eyed.
"Not with a bang but a whimper" – these famous words by T.S. Elliott can describe the break of EUR/USD above 1.1150 and to the highest levels in a week. Can the slow-moving currency pair accelerate and shoot higher?
Three factors are in play:
1) Sino-American, the real deal?
President Donald Trump and Chinese Vice Premier Liu He signed Phase One of the trade deal between the world's largest economies
After over three years, a path to ending the trade war has been set. China has agreed to buy around $200 billion of US goods, and America removed some tariffs. Beijing has also promised to improve protections for intellectual property and eliminate ownership restrictions.
However, many of the levies remain in place and will have to wait for the second phase of talks. While Vice President Mike Pence suggested that initial discussions are underway, Vice Premier He said that it would be "unwise" to kick off talks immediately.
Moreover, the successful implementation of Phase One depends on deals in the private sector and on the "competitive pricing" of American products. China has leeway to break the agreement.
Overall, despite the grandiose event, there are many uncertainties.
Markets initially reacted positively, and EUR/USD also advanced amid the risk-on mood, but the next comments may trigger more significant moves.
2) Christmas shopping spree?
Consumption is around 70% of the US economy, and there is no better time to shop than toward Christmas. The Retail Sales report for December also includes leftovers from Black Friday, which came late in 2019.
After a lackluster November, economists expect healthy gains in December. Strong numbers – especially in the all-important Control Group – may boost the dollar and end the rally. However, high expectations may prove too optimistic, leaving room for the euro to rise.
3) What does Lagarde really think?
Christine Lagarde, the new President of the European Central Bank, said back in December that she aspires to be an "owl" rather than a hawk or a dove. She added that the nightly bird is associated with wisdom. Back then, the former head of the International Monetary Fund tried refraining from rocking the boat, only announcing the beginning of a strategic review.
Lagarde's – known for her communication skills – guarded her cards in December. However, the meeting minutes from that first decision may shed some light on the tendencies with the Governing Council.
Several members publicly opposed the latest stimulus measures from her predecessor Mario Draghi. Have they remained vocal? Or has Lagarde managed to bring them together?
If the minutes show a leaning toward the hawks, EUR/USD may rise. If the ECB is still wary of weak growth and meager inflation, the common currency could retreat.
Overall, the next moves hinge on these three developments.
Euro/dollar has advanced above the 50 and 100 Simple Moving Averages on the four-hour chart. Moreover, the currency pair broke above the downtrend support line that accompanied it since late December.
All in all, bulls remain in control.
Resistance awaits at the fresh high of 1.1165, followed by 1.1205, 1.1230, and 1.1240, which were stepping stones on the way down.
Support awaits at 1.1145, followed by 1.1125, a swing low early in the year). The next lines to watch are 1.1105 and 1.1085, which were low points in the past week.
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